☒ | REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |
☐ | Pre-Effective Amendment No. |
☐ | Post-Effective Amendment No. |
☒ | REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |
☒ | Amendment No. 70 |
David D. Grumhaus, Jr. DNP Select Income Fund Inc. 200 South Wacker Drive, Suite 500 Chicago, IL 60606 |
Jennifer S. Fromm, Esq. DNP Select Income Fund Inc. 200 South Wacker Drive, Suite 500 Chicago, IL 60606 |
☐ | Check box if the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans. |
☒ | Check box if any securities being registered on this Form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933 (“Securities Act”), other than securities offered in connection with a dividend reinvestment plan. |
☒ | Check box if this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto. |
☐ | Check box if this Form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act. |
☐ | Check box if this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act. |
☐ | when declared effective pursuant to Section 8(c) of the Securities Act |
☒ | immediately upon filing pursuant to paragraph (b) of Rule 486 under the Securities Act |
☐ | This post-effective amendment designates a new effective date for a previously filed post-effective amendment. |
☐ | This Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
☐ | This Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
☐ | This Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
☒ | Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (“Investment Company Act”)). |
☐ | Business Development Company (closed-end company that intends or has elected to be regulated as a business development company under the Investment Company Act). |
☐ | Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act). |
☐ | A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form). |
☐ | Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act). |
☐ | Emerging Growth Company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934 (“Exchange Act”). |
☐ | If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. |
☐ | New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing). |
Page | ||||
1 | ||||
16 | ||||
16 | ||||
18 | ||||
18 | ||||
19 | ||||
20 | ||||
28 | ||||
33 | ||||
49 | ||||
52 | ||||
55 | ||||
57 | ||||
60 | ||||
63 | ||||
63 | ||||
65 | ||||
69 | ||||
69 | ||||
69 | ||||
70 |
The Fund |
DNP Select Income Fund Inc. (the “Fund”) is a closed-end, diversified management investment company that is registered under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund was incorporated in the State of Maryland on November 26, 1986 and first offered its common stock (“Common Stock”) to the public on January 21, 1987. The Fund’s Common Stock is traded on the New York Stock Exchange under the symbol “DNP.” The Fund’s principal office is located at 200 South Wacker Drive, Suite 500, Chicago, Illinois 60606, and its telephone number is (312) 263-2610. |
The Offering |
The Fund may offer, from time to time, in one or more offerings, shares of our Common Stock having an aggregate offering price of up to $126,843,417, which we also refer to as our securities, at prices and on terms to be set forth in one or more prospectus supplements (each, a “Prospectus Supplement”) to this Prospectus. We may offer and sell our securities through at-the-market |
Use of Proceeds |
Unless otherwise specified in a Prospectus Supplement, the Fund intends to invest the net proceeds of any offering of securities in accordance with its investment objectives and policies as stated herein. Pending investment, the timing of which may vary depending on the size of the investment but in no case is expected to exceed 30 days, it is anticipated that the proceeds will be invested in U.S. government securities, interest-bearing bank deposit accounts, or high quality, short-term money market securities. |
Investment Objectives |
The Fund’s primary investment objectives are current income and long-term growth of income. Capital appreciation is a secondary objective. |
Principal Investment Strategies |
The Fund seeks to achieve its investment objectives by investing primarily in a diversified portfolio of equity and fixed income securities of companies in the public utilities industry. Under normal conditions, more than 65% of the Fund’s total assets will be invested in securities of public utility companies engaged in the production, transmission or distribution of electric energy, gas or telephone services. |
The Fund’s policy of concentrating its investments in the utilities industry has been developed to take advantage of the characteristics of securities of companies in that industry. Historically, securities of companies in the public utilities industry have tended to produce current income and long-term growth of income for their holders. They are thus well suited to the Fund’s primary investment objectives. |
For more information on the Fund’s investment strategies, see “The Fund’s Investments” and “Risks.” |
Portfolio Contents |
The investments of the Fund are diversified not only in terms of issuers but also in terms of types of securities, since the Fund may invest in fixed income securities, such as bonds and preferred stocks, as well as common stocks, convertible securities and securities of MLPs and real estate investment trusts. Generally, the Fund purchases a fixed income security only if, at the time of purchase, it is rated investment grade, although the Fund is not required to divest itself of a security that falls below investment grade. The Fund does not have a specific maturity policy but generally does not purchase fixed income securities with maturities longer than 30 years. In addition, the Fund may invest in the securities of domestic and foreign issuers as well as in securities of companies of any market capitalization, including small and mid-cap stocks. The Fund may vary the percentage of assets invested in any one type of security based upon the Investment Adviser’s (as defined below) evaluation as to the appropriate portfolio structure for achieving the Fund’s investment objectives under prevailing market, economic and financial conditions. |
See “The Fund’s Investments — Investment Objectives and Principal Investment Strategy” and “Risk factors” in this prospectus and “Investment Objectives and Policies” in the SAI. |
Leverage |
The Fund may seek to enhance the level of its cash distributions to holders of Common Stock through the use of leverage. The Fund currently uses two basic forms of leverage — debt and preferred stock (“Preferred Stock”) — and may in the future continue to use leverage through either or both of those means. Debt leverage, which we refer to in this Prospectus as “Borrowings,” may include loans from financial institutions and/or the issuance of debt securities. Borrowings are limited to an aggregate amount of 33 1 /3 % of the Fund’s total assets, measured immediately after each such Borrowing takes place. In addition, the Fund may enter into |
investment management techniques that have effects similar to Borrowings, but which are not subject to the foregoing 33 1 /3 % limitation so long as the Fund has covered its commitment with respect to such techniques by segregating liquid assets, entering into offsetting transactions or owning positions covering its obligations. The Fund may also use leverage through the issuance of Preferred Stock in an aggregate amount of up to 50% of the Fund’s total assets, measured immediately after each issuance of Preferred Stock. |
Borrowings rank senior to our Preferred Stock, and both our Borrowings and our Preferred Stock rank senior to our Common Stock. The Board of the Fund may authorize the use of leverage through Borrowings and Preferred Stock without the approval of the Common Stockholders. Common Stockholders bear the costs associated with any Borrowings, and if the Fund issues Preferred Stock, Common Stockholders bear the offering costs of the Preferred Stock issuance. The amount of leverage used by the Fund (if any) may vary depending upon a number of factors, including the Investment Adviser’s outlook for the market and the costs that the Fund would incur as a result of such leverage. There is no assurance that the Fund’s leveraging strategy will be successful. |
During periods when the Fund is using leverage through Borrowings or the issuance of Preferred Stock, the fees paid to the Investment Adviser for advisory services will be higher than if the Fund did not use leverage because the fees paid will be calculated on the basis of the Fund’s “average weekly managed assets,” which include the principal amount of the Borrowings and any assets attributable to the issuance of Preferred Stock. This means that the Investment Adviser has a financial incentive to increase the Fund’s use of leverage. See “Use of Leverage” and “Risks —Leverage Risk.” |
As of October 31, 2022, we had outstanding secured notes and a floating rate committed credit facility with a commercial bank (the “Credit Facility”) in place under which we had Borrowings representing approximately 20.21% of our total assets. The Borrowings and Preferred Stock rank senior to our Common Stock. |
The Fund may borrow up to an aggregate amount of $598,000,000 under its Credit Facility. As of October 31, 2022, the Fund had $598,000,000 of Borrowings outstanding under the Credit Facility. The commercial bank providing the Credit Facility has the right to terminate the Credit Facility and require repayment of any loan upon 179 days’ notice or following an event of default. |
In 2016, the Fund completed a private placement of $300,000,000 of fixed-rate secured notes. These notes consist of two series: $100,000,000 of the 2.76% Series A Secured Notes due July 22, 2023 and $200,000,000 of the 3.00% Series B Secured Notes due July 22, 2026. |
In 2014, the Fund completed a private placement of 3,000 Mandatory Redeemable Preferred Shares (“MRPS”). The MRPS were issued in four series consisting of: 1,320 shares of Series A MRPS with a dividend rate of 3 month LIBOR plus 2.00% and a term redemption date of April 1, 2019, 600 shares of Series B MRPS with a dividend rate of 3 month LIBOR plus 2.05% and a term redemption date of April 1, 2021, 750 shares of Series C MRPS with a dividend rate of 3 month LIBOR plus 2.15% and a term redemption date of April 1, 2024 and 330 shares of Series D MRPS with a dividend rate of 3 month LIBOR plus 1.95% and a term redemption date of April 1, 2021. In January 2019, the Fund completed a private placement of 1,320 shares of Series E MRPS with a fixed rate dividend of 4.63% and a term redemption date of April 1, 2027. The proceeds were used to redeem all 1,320 issued and outstanding Series A MRPS. In April 2021, the Fund utilized Borrowings under its Credit Facility to redeem all 930 issued and outstanding Series B MRPS and Series D MRPS. Each share of MRPS has a liquidation preference of $100,000, resulting in an aggregate liquidation preference of $207 million for all outstanding MRPS. |
As of October 31, 2022 our total leverage (including Borrowings and Preferred Stock) of $1.105 billion represented 26.16% of our total assets. |
Distributions |
On February 21, 2007, the Board of Directors of the Fund adopted a Managed Distribution Plan. The Managed Distribution Plan provides for the Fund to make a monthly distribution to holders of its Common Stock of 6.5 cents per share, subject to the right of the Board to suspend, modify, or terminate the Managed Distribution Plan without notice at any time. Distributions under the Managed Distribution Plan may include a return of capital. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income”. Rather, a return of capital distribution represents a reduction of a shareholder’s principal investment in the Fund. To the extent that the Fund uses capital gains and/or returns of capital to supplement its investment income, shareholders should not draw any conclusions about the Fund’s investment performance from the amount of the Fund’s distributions or from the terms of the Managed Distribution Plan. Return of capital is not taxable to shareholders in the year it is paid. Rather, shareholders are required to reduce the cost basis of their shares by the amount of the return of capital so that, when the shares are ultimately sold, they will have properly accounted for the return of capital. Such an adjustment may cause a shareholder’s gain to be greater, or loss to be smaller, depending on the sales proceeds received. See “Managed Distribution Plan.” |
Interest Rate Transactions |
In connection with the Fund’s use of leverage through its Preferred Stock and variable rate borrowings, 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 paying the Fund a variable rate payment that is intended to approximate the Fund’s variable rate payment obligation on its Preferred Stock or variable rate borrowings. The payment obligation would be based on the notional amount of the swap. The Fund’s payment obligations under the swap are general unsecured obligations of the Fund and are ranked senior to distributions under the Common Stock and Preferred Stock. The Fund may use an interest rate cap, which would require it 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 from the counterparty payment of the difference based on the notional amount. The Fund would use interest rate swaps or caps only with the intent to reduce or eliminate the effect that an increase in short-term interest rates could have on Common Share net earnings as a result of leverage. See “The Fund’s investments —Interest Rate Transactions” and “Risk factors — Hedging Strategy Risk” and “ — Derivatives Risk.” |
Investment Adviser |
The Fund’s investment adviser is Duff & Phelps Investment Management Co. (the “Investment Adviser”). Subject to the overall control of the Board of the Fund, the Investment Adviser is responsible for managing the Fund’s investment portfolio. The Investment Adviser receives a quarterly fee at an annual rate of 0.60% of the Fund’s average weekly managed assets of the Fund up to $1.5 billion and 0.50% of average weekly managed assets in excess of $1.5 billion. For purposes of the foregoing calculation, “average weekly managed assets” is defined as the average weekly value of the Fund’s total assets minus the sum of all accrued liabilities of the Fund (other than the aggregate amount of any outstanding borrowings or other indebtedness constituting financial leverage). Also for purposes of the foregoing calculation, to the extent the Fund utilizes derivative transactions, such derivative transactions will be valued using mark-to-market |
Administrator |
Robert W. Baird & Co. Incorporated (the “Administrator”) is the Fund’s administrator. The Administrator provides administrative services required in connection with the operation of the Fund. For its services, the Administrator receives from the Fund a quarterly fee at annual rates of 0.20% of the Fund’s average weekly |
managed assets up to $1 billion and 0.10% of average weekly managed assets over $1 billion. |
Custodian and Transfer Agent |
The Bank of New York Mellon serves as custodian of the Fund’s assets. Computershare Inc. serves as the Fund’s transfer agent. See “Custodian and Transfer Agent.” |
Listing and Symbol |
The Fund’s shares of Common Stock are listed on the New York Stock Exchange (“NYSE”) under the trading or “ticker” symbol “DNP.” The net asset value of our Common Stock at the close of business on October 31, 2022 was $8.65 per share, and the last sale price per share of our Common Stock on the NYSE on that date was $10.65. |
Risks |
An investment in the Fund’s securities involves various material risks. The following are the principal risks of investing in the Fund. |
Investment and Market Risk. over-the-counter |
Market Discount Risk. closed-end management investment companies often trade at a discount to their net asset value. Although the Fund’s Common Stock has historically traded at a premium to its net asset value, it may trade at a discount to net asset value. If our Common Stock trades at a discount to our net asset value, the risk of loss may increase for purchasers of our Common Stock, especially for those investors who expect to sell their Common Stock in a relatively short period after purchasing shares in this offering. |
Concentration Risk. |
Utilities Industry Risk. man-made disasters, increased costs and reduced availability of certain types of fuel, occasional reduced availability and high costs of natural gas and other fuels, the effects of energy conservation, the effects of a national energy policy and lengthy delays and greatly increased costs and other problems associated with the design, construction, licensing, regulation and operation of nuclear facilities for electric generation, including, among other considerations, the problems associated with the use of radioactive materials, the disposal of radioactive wastes, shutdown of facilities or release of radiation resulting from catastrophic events, disallowance of costs by regulators which may reduce profitability, and changes in market structure that increase competition. |
Leverage Risk. |
Management Risk. |
Common Stock Risk. |
perceptions of the financial condition of an issuer or the general condition of the relevant stock market, or when political or economic events affecting the issuer occur. In addition, common stock prices may be sensitive to rising interest rates, as the costs of capital rise and borrowing costs increase. |
Small and Mid-Cap Company Risk.mid-cap companies may be subject to more abrupt or erratic movements in price than its investments in larger, more established companies because the securities of such companies are less well-known, held primarily by insiders or institutional investors or may trade less frequently and in lower volume. Furthermore, small and mid-cap companies are more likely to experience greater or more unexpected changes in their earnings and growth prospects. Such companies often have limited financial resources or may depend on a few key employees, and the products or technologies of such companies may be at a relatively early stage of development or not fully tested. |
Preferred Stock Risk. “non-cumulative” preferred stocks) or defer distributions (in the case of “cumulative” preferred stocks). If the Fund owns a preferred stock that is deferring its distributions, the Fund may be required to report income for tax purposes while it is not receiving income on this position. Preferred stocks often contain provisions that allow for redemption in the event of certain tax or legal changes or at the issuers’ call. In the event of redemption, the Fund may not be able to reinvest the proceeds at comparable rates of return. Preferred stocks typically do not provide any voting rights, except in cases when dividends are in arrears beyond a certain time period, which varies by issue. Preferred stocks are subordinated to bonds and other debt instruments in a company’s capital structure in terms of priority to corporate income and liquidation payments, and therefore will be subject to greater credit risk than those debt instruments. |
Preferred stocks may be significantly less liquid than many other securities, such as United States Government securities, corporate debt or common stock. |
MLP Risk. |
Debt Securities Risk. |
• | Redemption Risk |
• | Limited Voting Rights |
• | Liquidity |
Illiquid Securities Risk. |
Issuer Risk. |
Credit Risk. |
amount of dividends the Fund is required to pay on the Preferred Stock). In addition, the underlying revenue source for a preferred stock or debt security may be insufficient to pay dividends, interest or principal in a timely manner. Because a primary source of income for the Fund is the dividend, interest and principal payments on the preferred stocks or debt securities in which it invests, any default by an issuer of a preferred stock or debt security could have a negative impact on the Fund’s ability to pay dividends to its investors. Even if the 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 or the value of credit derivatives if the Fund has sold credit protection. |
Interest Rate Risk. Interest rate risk is the risk that preferred stocks paying fixed dividend rates and fixed-rate debt securities will decline in value because of changes in market interest rates. When interest rates rise, the market value of such securities generally will fall. The Fund’s investment in preferred stocks and fixed-rate debt securities means that the net asset value and price of the Common Stock may decline if market interest rates rise. The net asset value of the Fund’s investments in common stock may also fluctuate based on changes in interest rates. Interest rates are currently low relative to historic levels. During periods of declining interest rates, an issuer of preferred stock or fixed-rate debt securities may exercise its option to redeem securities prior to maturity, forcing the Fund to reinvest in lower yielding securities. This is known as call risk. During periods of rising interest rates, the average life of certain types of securities may be extended because of slower than expected payments. This may lock in a below market yield, increase the security’s duration and reduce the value of the security. This is known as extension risk. The value of the Fund’s common stock investments may also be influenced by changes in interest rates. |
Income Risk. The income that holders of Common Stock receive from the Fund is based primarily on the dividends and interest the Fund earns from its investments, which can vary widely over the short and long term. If prevailing market interest rates drop, distribution rates on the Fund’s preferred stock holdings and bond holdings — and thus income available for distributions to holders of the Common Stock — could drop as well. The Fund’s income also would likely be affected adversely when prevailing short-term interest rates increase and the Fund is utilizing leverage. |
Foreign Investment Risk. Although the Fund is prohibited from investing 20% or more of its assets in securities of foreign issuers, the Fund may be exposed to certain risks as a result of foreign investments. When the Fund invests in securities of foreign issuers, it is subject to risks not typically associated with investing in securities of U.S. companies. These risks can include currency |
devaluations and other fluctuations in foreign currencies, foreign currency exchange controls, greater price volatility, substantially less liquidity and significantly smaller market capitalization of securities markets, more substantial government involvement in the economy, higher rates of inflation, differences in securities regulation and trading, political uncertainty and other risks. |
In addition, accounting, auditing and financial reporting standards in foreign countries are different from U.S. standards. As a result, certain material disclosures may not be made and less information may be available to the Fund and other investors than would be the case if the Fund’s investments were restricted to securities of U.S. issuers. Moreover, it may be more difficult to obtain a judgment in a court outside the United States. Interest and dividends paid on securities held by the Fund and gains from the disposition of such securities may be subject to withholding taxes imposed by foreign countries. Although in some countries portions of these taxes are recoverable, any amounts not recovered will reduce the income received by the Fund, and may reduce distributions to holders of Common Stock. |
Foreign Currency Risk. Investments in securities that trade in and receive revenues in foreign currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar. Currency rates in foreign countries may fluctuate significantly over short periods of time. A decline in the value of foreign currencies relative to the U.S. dollar will reduce the value of securities held by the Fund and denominated in those currencies. |
Reverse Repurchase Agreement Risk. Reverse repurchase agreements involve the risk that the market value of the securities retained in lieu of sale by the Fund may decline below the price of the securities the Fund has sold but is obligated to repurchase. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce the Fund’s obligation to repurchase the securities and the Fund’s use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision. Reverse repurchase agreements are a form of leverage and are subject to the risks described above under “Leverage Risk.” |
Hedging Strategy Risk. Certain of the investment techniques that the Fund may employ for hedging or, under certain circumstances, to increase income or total return, will expose the Fund to risks. Such investment techniques may include entering into interest rate and stock index futures contracts and options on interest rate and stock index futures contracts, purchasing and selling put and call options on securities and stock indices, purchasing and selling securities on a when-issued or delayed delivery basis and lending portfolio securities. |
There are economic costs of hedging reflected in the pricing of futures, swaps, options and contracts related to options on positions in interest rate swaps which can be significant, particularly when long-term interest rates are substantially above short-term interest rates. There may be an imperfect correlation between changes in the value of the Fund’s portfolio holdings and hedging positions entered into by the Fund, which may prevent the Fund from achieving the intended hedge or expose the Fund to risk of loss. In addition, the Fund’s success in using hedge instruments is subject to the Investment Adviser’s ability to predict correctly changes in the relationships of such hedge instruments to the Fund’s portfolio holdings, and there can be no assurance that the Investment Adviser’s judgment in this respect will be accurate. Consequently, the use of hedging transactions might result in a poorer overall performance for the Fund, whether or not adjusted for risk, than if the Fund had not hedged its portfolio holdings. |
Derivatives Risk. The Fund does not currently utilize derivatives transactions. To the extent the Fund enters into derivatives transactions (such as futures contracts and options thereon, options and swaps) in the future, the Fund will be subject to increased risk of principal loss due to imperfect correlation or unexpected price or interest rate movements. The Fund also will be subject to credit risk with respect to the counterparties to the derivatives contracts purchased by the Fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, the Fund may experience significant delays in obtaining any recovery under the derivative contract in a bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances. The Fund’s exposure to any single counterparty will be limited to no more than 25% of the Fund’s total assets. As a general matter, dividends received on hedged stock positions are characterized as ordinary income and are not eligible for favorable tax treatment. In addition, use of derivatives may give rise to short-term capital gains and other income that would not qualify for payments by the Fund of qualified dividends eligible for a reduced federal income tax rate. |
Dividend Capture Risk. The Fund may seek to increase its dividend income using a strategy called “dividend capture.” In a dividend capture trade, the Fund purchases stock of a particular issuer on or prior to the ex-dividend date for that stock. Because the Fund is the holder of the stock on the ex-dividend date, it is entitled to receive the dividend on the stock. After the ex-dividend date, the Fund seeks an opportunity to sell the stock and reinvest the proceeds in the stock of a different issuer on or prior to that stock’s ex-dividend date. Any use of dividend capture strategies would also expose the Fund to increased trading costs and the potential for capital loss. Since 2004, the Fund has not made |
significant use of dividend captures but may decide to do so in the future. |
Portfolio Turnover Risk. The techniques and strategies contemplated by the Fund might result in a high degree of portfolio turnover. The Fund cannot accurately predict its portfolio turnover rate, but anticipates that its annual portfolio turnover rate will not exceed 100% (excluding turnover of securities having a maturity of one year or less) under normal market conditions, although it could be materially higher under certain conditions. A high turnover rate (100% or more) necessarily involves greater expenses to the Fund and may result in realization of net short-term capital gains. See “Investment Objectives and Policies” in the SAI. |
Inflation Risk. Inflation risk is the risk that the purchasing power of assets or income from investment will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s Common Stock and Preferred Stock, and distributions thereon, can decline. In addition, during any periods of rising inflation, dividend rates on the Fund’s MRPS and interest rates on the Fund’s Borrowings would likely increase, which would tend to further reduce returns to the holders of the Common Stock. |
Market Disruption Risk. The Fund is subject to investment and operational risks associated with financial, economic and other global market developments and disruptions, including those arising from war, terrorism, market manipulation, government interventions, defaults and shutdowns, political changes or diplomatic developments, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and natural/environmental disasters, which can all negatively impact the securities markets and cause the Fund to lose value. Assets of companies, including those held in the Fund’s portfolio, could be direct targets, or indirect casualties, of an act of terrorism and may also be particularly sensitive to natural/environmental disasters. In addition, the United States Government has issued warnings that assets of utility companies and energy sector companies, specifically the United States’ pipeline infrastructure, may be the future target of terrorist organizations. |
Capital Markets Risk. Global financial markets and economic conditions are volatile due to a variety of factors, including significant write-offs in the financial services sector, and therefore companies may have difficulty raising capital. In particular, as a result of concerns about the general stability of financial markets and specifically the solvency of lending counterparties, the cost of raising capital from the credit markets generally has increased as many lenders and institutional investors have increased interest rates, enacted tighter lending standards, refused to refinance debt on existing terms or at all and reduced, or in some cases ceased to |
provide, funding to borrowers. In addition, lending counterparties under existing credit facilities and other debt instruments may be unwilling or unable to meet their funding obligations. Due to these factors, companies may be unable to obtain new debt or equity financing on acceptable terms or at all. If funding is not available when needed, or is available only on unfavorable terms, companies may not be able to meet their obligations as they come due. Moreover, without adequate funding, companies may be unable to execute their growth strategies, complete future acquisitions, take advantage of other business opportunities or respond to competitive pressures, any of which could have a material adverse effect on their revenues and results of operations. |
Pandemic Risk. The continuing spread of an infectious respiratory illness caused by a novel strain of coronavirus (known as COVID-19) has caused volatility, severe market dislocations and liquidity constraints in many markets, including securities the Fund holds, and may adversely affect the Fund’s investments and operations. The impact of COVID-19, and other infectious illness outbreaks, epidemics or pandemics that may arise in the future, could adversely affect the economies of many nations or the entire global economy, the financial performance of individual issuers, borrowers and sectors and the health of the markets generally in potentially significant and unforeseen ways. In addition, the impact of infectious illnesses, such as COVID-19, in emerging market countries may be greater due to generally less established healthcare systems. This crisis or other public health crises may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The foregoing could lead to a significant economic downturn or recession, increased market volatility, a greater number of market closures, higher default rates and adverse effects on the values and liquidity of securities or other assets. Such impacts, which may vary across asset classes, may adversely affect the performance of the Fund’s investments, the Fund and a shareholder’s investment in the Fund. In certain cases, an exchange or market may close or issue trading halts on either specific securities or even the entire market, which may result in the Fund being, among other things, unable to buy or sell certain securities or financial instruments or to accurately price its investments. |
Tax Risk. The Fund’s investment program and the tax treatment of Fund distributions may be affected by Internal Revenue Service interpretations of the Internal Revenue Code of 1986, as amended (the “Code”) and future changes in tax laws and regulations, including changes in the provisions that currently apply to the favorable tax treatment of certain qualified dividends. There can be no assurance that any portion of the Fund’s income distributions will not be fully taxable as ordinary income. Additionally, in order for the Fund to avoid corporate-level income tax, the Fund must qualify each year as a regulated |
investment company under the Code and distribute all of its net income. |
MLP Tax Risk. The Fund’s ability to meet its investment objectives will depend, in part, on the level of taxable income and distributions the Fund receives from the equity securities in which it invests, a factor over which the Fund has no control. The benefit the Fund will derive from its investment in MLPs will be largely dependent on the MLPs being treated as partnerships and not as corporations for federal income tax purposes. As a partnership, an MLP generally has no tax liability at the entity level. If, as a result of a change in current law or a change in an MLP’s business, an MLP were treated as a corporation for federal income tax purposes, such MLP would be obligated to pay tax on its income at the corporate tax rate. If an MLP were classified as a corporation for federal income tax purposes, the amount of cash available for distribution by the MLP would be reduced and distributions received by the Fund would be taxed under federal income tax laws applicable to corporate dividends (as dividend income, return of capital, or capital gain). Therefore, treatment of an MLP as a corporation for federal income tax purposes would result in a reduction in the after-tax return to the Fund, likely causing a reduction in the value of the Fund’s Common Stock. |
Certain Affiliations. Certain broker-dealers may be considered to be affiliated persons of the Fund or the Investment Adviser. Absent an exemption from the SEC or other regulatory relief, the Fund is generally precluded from effecting certain principal transactions with affiliated brokers, and its ability to purchase securities being underwritten by an affiliated broker or a syndicate including an affiliated broker, or to utilize affiliated brokers for agency transactions, is subject to restrictions. This could limit the Fund’s ability to engage in securities transactions and take advantage of market opportunities. |
Anti-Takeover Provisions. Certain provisions of the Fund’s charter and bylaws may be regarded as “anti-takeover” provisions because they could have the effect of limiting the ability of other entities or persons to acquire control of the Fund. These provisions could have the effect of depriving holders of Common Stock of opportunities to sell their Common Stock at a premium over the then-current market price of the Common Stock or at net asset value. See “Certain provisions of the Charter and Bylaws and certain provisions of Maryland law — Anti-Takeover Provisions in the Charter and Bylaws” below. |
(1) Title of Class |
(2) Amount of Shares/ Aggregate Liquidation Preference/ Aggregate Principal Amount Authorized |
(3) Amount Held by Fund for Its Own Account |
(4) Amount Outstanding Exclusive of Amount Shown Under (3) |
|||||||||
Common Stock |
450,000,000 |
0 |
354,377,900 |
|||||||||
Preferred Stock |
2,070 |
0 |
2,070 |
|||||||||
MRPS (1) |
2,070 |
0 |
2,070 |
|||||||||
Series C |
750 |
0 |
750 |
|||||||||
Series E |
1,320 |
0 |
1,320 |
|||||||||
Secured Notes |
$ |
300,000,000 |
0 |
$ |
300,000,000 |
|||||||
Series A |
$ |
100,000,000 |
0 |
$ |
100,000,000 |
|||||||
Series B |
$ |
200,000,000 |
0 |
$ |
200,000,000 |
|||||||
Credit Facility |
$ |
598,000,000 |
0 |
$ |
598,000,000 |
(1) | Each share of MRPS has a liquidation preference of $100,000. |
Type of Borrowing |
Principal Amount |
|||
Credit Facility |
$ | 598,000,000 | ||
2.76% Series A Senior Secured Notes due July 22, 2023 |
$ | 100,000,000 | ||
3.00% Series B Senior Secured Notes due July 22, 2026 |
$ | 200,000,000 | ||
Total Borrowings |
$ | 898,000,000 |
• | 750 shares of Series C MRPS with a floating dividend rate of 3 month LIBOR plus 2.15% and a term redemption date of April 1, 2024, and |
• | 1,320 shares of Series E MRPS with a fixed dividend rate of 4.63% and a term redemption date of April 1, 2027. |
Assumed Portfolio Total Return (Net of Expenses) |
(10 | )% | (5 | )% | 0 | % | 5 | % | 10 | % | ||||||||||
Common Stock Total Return |
(14.63 | )% | (7.81 | )% | (0.99 | )% | 5.83 | % | 12.65 | % |
• | the federal Clean Air Act and comparable state laws and regulations that impose obligations related to air emissions; |
• | the federal Clean Water Act and comparable state laws and regulations that impose obligations related to discharges of pollutants into regulated bodies of water; |
• | the Resource Conservation and Recovery Act (“RCRA”) and comparable state laws and regulations that impose requirements for the handling and disposal of waste from facilities; and |
• | the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), also known as “Superfund,” and comparable state laws and regulations that regulate the cleanup of hazardous substances that may have been released at properties currently or previously owned or operated by energy companies or at locations to which they have sent waste for disposal. |
• | Redemption Risk — Debt securities sometimes contain provisions that allow for redemption in the event of tax or security law changes in addition to call features at the option of the issuer. In the event of a redemption, the Fund may not be able to reinvest the proceeds at comparable rates of return. |
• | Limited Voting Rights — Debt securities typically have limited voting rights, except in cases when interest payments have not been made and the issuer is in default. |
• | Liquidity — Certain debt securities may be substantially less liquid than many other securities, such as United States Government securities or common stocks. |
Distribution Payment Date to Common Stockholders |
Amount of Distribution Per Share |
Amount of Corresponding Reinvestment through Distribution Reinvestment and Cash Purchase Plan |
Additional Shares of Common Stock Issued through Distribution Reinvestment and Cash Purchase Plan |
Tax Character |
||||||||||||||||
Return of Capital (%) |
Qualified Dividends (%) |
|||||||||||||||||||
01/10/19 |
0.065 | 3,599,671 | 346,039 | 0.00 | 78.39 | |||||||||||||||
02/11/19 |
0.065 | 3,654,641 | 342,869 | 20.53 | 5.04 | |||||||||||||||
03/11/19 |
0.065 | 3,656,850 | 336,773 | 20.53 | 5.04 | |||||||||||||||
04/10/19 |
0.065 | 3,714,517 | 337,367 | 20.53 | 5.04 | |||||||||||||||
05/10/19 |
0.065 | 3,745,156 | 340,732 | 20.53 | 5.04 | |||||||||||||||
06/10/19 |
0.065 | 3,747,274 | 335,702 | 20.53 | 5.04 | |||||||||||||||
07/10/19 |
0.065 | 3,730,395 | 328,872 | 20.53 | 5.04 | |||||||||||||||
08/12/19 |
0.065 | 3,742,005 | 321,023 | 20.53 | 5.04 | |||||||||||||||
09/10/19 |
0.065 | 3,749,962 | 308,385 | 20.53 | 5.04 | |||||||||||||||
10/10/19 |
0.065 | 3,767,324 | 310,784 | 20.53 | 5.04 | |||||||||||||||
11/12/19 |
0.065 | 3,906,326 | 333,219 | 0.00 | 76.08 | |||||||||||||||
12/10/19 |
0.065 | 3,966,706 | 327,232 | 0.00 | 76.08 | |||||||||||||||
01/10/20 |
0.065 | 3,966,589 | 327,736 | 0.00 | 76.08 | |||||||||||||||
02/10/20 |
0.065 | 3,955,179 | 322,490 | 21.96 | 7.04 | |||||||||||||||
03/10/20 |
0.065 | 3,905,071 | 348,356 | 21.96 | 7.04 | |||||||||||||||
04/10/20 |
0.065 | 3,981,557 | 390,962 | 21.96 | 7.04 | |||||||||||||||
05/11/20 |
0.065 | 4,021,554 | 404,705 | 21.96 | 7.04 | |||||||||||||||
06/10/20 |
0.065 | 3,989,166 | 364,191 | 21.96 | 7.04 | |||||||||||||||
07/10/20 |
0.065 | 4,016,528 | 387,883 | 21.96 | 7.04 | |||||||||||||||
08/10/20 |
0.065 | 4,030,261 | 387,432 | 21.96 | 7.04 | |||||||||||||||
09/10/20 |
0.065 | 4,059,078 | 407,313 | 21.96 | 7.04 | |||||||||||||||
10/13/20 |
0.065 | 4,090,548 | 420,082 | 21.96 | 7.04 | |||||||||||||||
11/10/20 |
0.065 | 4,106,449 | 427,978 | 0.00 | 76.76 | |||||||||||||||
12/10/20 |
0.065 | 4,107,036 | 416,092 | 0.00 | 76.76 | |||||||||||||||
01/11/21 |
0.065 | 4,123,511 | 426,379 | 0.00 | 76.76 | |||||||||||||||
02/10/21 |
0.065 | 4,118,387 | 417,644 | 19.62 | 10.08 | |||||||||||||||
03/10/21 |
0.065 | 4,082,027 | 424,592 | 19.62 | 10.08 | |||||||||||||||
04/12/21 |
0.065 | 4,301,691 | 455,085 | 19.62 | 10.08 | |||||||||||||||
05/10/21 |
0.065 | 4,372,229 | 444,997 | 19.62 | 10.08 | |||||||||||||||
06/10/21 |
0.065 | 4,431,553 | 444,266 | 19.62 | 10.08 | |||||||||||||||
07/12/21 |
0.065 | 4,483,560 | 446,503 | 19.62 | 10.08 | |||||||||||||||
08/10/21 |
0.065 | 4,529,870 | 445,634 | 19.62 | 10.08 | |||||||||||||||
09/10/21 |
0.065 | 4,570,732 | 444,667 | 19.62 | 10.08 | |||||||||||||||
10/12/21 |
0.065 | 4,599,630 | 458,062 | 19.62 | 10.08 | |||||||||||||||
11/10/21 |
0.065 | 4,633,953 | 449,571 | 0.00 | 77.15 | |||||||||||||||
12/10/21 |
0.065 | 4,657,630 | 453,960 | 0.00 | 77.15 | |||||||||||||||
01/10/22 |
0.065 | 4,684,593 | 450,745 | 0.00 | 77.15 | |||||||||||||||
02/10/22 |
0.065 | 4,710,647 | 443,522 | 22.61 | 5.14 | |||||||||||||||
03/10/22 |
0.065 | 4,730,496 | 441,834 | 22.61 | 5.14 |
Distribution Payment Date to Common Stockholders |
Amount of Distribution Per Share |
Amount of Corresponding Reinvestment through Distribution Reinvestment and Cash Purchase Plan |
Additional Shares of Common Stock Issued through Distribution Reinvestment and Cash Purchase Plan |
Tax Character |
||||||||||||||||
Return of Capital (%) |
Qualified Dividends (%) |
|||||||||||||||||||
04/11/22 |
0.065 | 4,735,584 | 421,728 | 22.61 | 5.14 | |||||||||||||||
05/10/22 |
0.065 | 4,730,158 | 447,762 | 22.61 | 5.14 | |||||||||||||||
06/10/22 |
0.065 | 4,780,935 | 462,127 | 22.61 | 5.14 | |||||||||||||||
07/11/22 |
0.065 | 4,837,680 | 467,183 | 22.61 | 5.14 | |||||||||||||||
08/10/22 |
0.065 | 4,875,998 | 451,816 | 22.61 | 5.14 | |||||||||||||||
09/12/22 |
0.065 | 4,876,380 | 458,716 | 22.61 | 5.14 | |||||||||||||||
10/11/22 |
0.065 | 4,905,750 | 515,364 | 22.61 | 5.14 | |||||||||||||||
11/10/22 |
0.065 | 4,934,463 | 476,967 | 0.00 | 73.60 | |||||||||||||||
12/12/22 |
0.065 | 4,916,496 | 461,253 | 0.00 | 73.60 | |||||||||||||||
01/10/23 |
0.065 | 4,939,723 | 455,316 | 0.00 | 73.60 |
(i) | to amend, alter or repeal any of the preferences, rights or powers of holders of MRPS so as to affect materially and adversely such preferences, rights or powers, |
(ii) | to amend, alter or repeal any of the provisions of the Charter or bylaws if such amendment, alteration or repeal would materially and adversely affect any privilege, preference, right or power of MRPS shares or the holder thereof or limit the ability of the Fund to comply with the terms of the purchase agreement for the MRPS, |
(iii) | to create, authorize or issue Preferred Stock (or securities convertible into Preferred Stock) that ranks equally to the MRPS, provided, however, that no vote or consent of the holders of MRPS is required if, upon issuance of such securities, (A) the Fund satisfies certain asset coverage tests and, in all material respects, the other applicable provisions of the Charter and (B) all accrued and unpaid dividends on the MRPS have been paid in full and all redemptions required in respect of the MRPS, subject to certain exceptions, have been effectuated, except to the extent the proceeds of the issuance of such Preferred Stock are used to pay such dividends in full and/or to effect such redemptions, and further subject to further conditions as described in the Charter, |
(iv) | to create, authorize or issue any shares of capital stock of the Fund which are senior to MRPS with respect to the payment of dividends, the making of redemptions, liquidation preference or the distribution of assets of the Fund, or any securities convertible into, or warrants, options or similar rights to purchase, acquire or receive, such shares of capital stock ranking senior to MRPS or reclassify any authorized shares of capital stock of the Fund into any shares ranking senior to the MRPS, |
(v) | to create, authorize, issue, incur or suffer to exist any indebtedness for borrowed money or any direct or indirect guarantee of such indebtedness for borrowed money or any direct or indirect guarantee of such indebtedness, except the Fund may borrow and issue indebtedness as may be permitted by the Fund’s investment restrictions or as may be permitted by the 1940 Act (subject to certain exclusions) or |
(vi) | to liquidate or dissolve the Fund. |
• | a merger or consolidation of the Fund with another corporation, |
• | a sale of all or substantially all of the Fund’s assets (other than in the regular course of the Fund’s investment activities), or |
• | a liquidation or dissolution of the Fund, |
• | any person who beneficially owns ten percent or more of the voting power of the corporation’s shares; or |
• | an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of ten percent or more of the voting power of the then outstanding voting stock of the corporation. |
• | 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and |
• | two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. |
• | one-tenth or more but less than one-third, |
• | one-third or more but less than a majority, or |
• | a majority or more of all voting power. |
• | a classified board; |
• | a two-thirds vote requirement for removing a director; |
• | a requirement that the number of directors be fixed only by vote of directors; |
• | a requirement that a vacancy on the board be filled only by the remaining directors and for the remainder of the full term of the class of directors in which the vacancy occurred; and |
• | a majority requirement for the calling of a special meeting of stockholders. |
• | through “at-the-market” |
• | directly to one or more purchasers (“direct sales”), |
• | through agents for the period of their appointment, |
• | to underwriters as principals for resale to the public, |
• | to dealers as principals for resale to the public, or |
• | pursuant to our Distribution Reinvestment and Cash Purchase Plan. |
• | the names of any agents, underwriters or dealers; |
• | any sales loads, underwriting discounts and commissions or agency fees and other items constituting underwriters’ or agents’ compensation; |
• | any discounts, commissions, fees or concessions allowed or reallowed or paid to dealers or agents; |
• | the public offering or purchase price of the offered securities and the estimated net proceeds we will receive from the sale; and |
• | any securities exchange on which the offered securities may be listed. |
• | An overallotment in connection with an offering creates a short position in the offered securities for the underwriters’ own account. |
• | An underwriter may place a stabilizing bid to purchase an offered security for the purpose of pegging, fixing, or maintaining the price of that security. |
• | Underwriters may engage in syndicate covering transactions to cover overallotments or to stabilize the price of the offered securities by bidding for, and purchasing, the offered securities or any other securities in the open market in order to reduce a short position created in connection with the offering. |
• | The managing underwriter may impose a penalty bid on a syndicate member to reclaim a selling concession in connection with an offering when offered securities originally sold by the syndicate member are purchased in syndicate covering transactions or otherwise. |
• | the Fund’s Statement of Additional Information, dated March 3, 2023, filed with the accompanying Prospectus; |
• | the Fund’s Annual Report on Form N-CSR, dated October 31, 2022, filed on January 6, 2023, as amended on February 28, 2023; |
• | the Fund’s Semi-Annual Report on Form N-CSRS, dated April 30, 2022, filed on June 24, 2022; |
• | the Fund’s Definitive Proxy Statement on Schedule 14A, filed on January 13, 2023; |
• | the Financial Highlights in the Fund’s Annual Report on Form N-CSR, dated October 31, 2015, filed on December 30, 2015; |
• | the Fund’s description of Common Shares on Form 8-A, filed on January 9, 1987. |
2 | ||||
2 | ||||
2 | ||||
5 | ||||
6 | ||||
10 | ||||
11 | ||||
12 | ||||
14 | ||||
14 | ||||
21 | ||||
23 |
STATEMENT OF ADDITIONAL INFORMATION
DNP SELECT INCOME FUND INC.
200 South Wacker Drive, Suite 500
Chicago, Illinois 60606
(312) 263-2610
DATED: March 3, 2023
DNP Select Income Fund Inc. (the “Fund”) is a diversified, closed-end management investment company. Duff & Phelps Investment Management Co. serves as investment adviser to the Fund.
This Statement of Additional Information (the “SAI”) relating to the Fund’s shares of Common Stock is not a prospectus, and is authorized for distribution to prospective investors only if preceded or accompanied by the prospectus for the Fund dated March 3, 2023, as supplemented from time to time, which is incorporated herein by reference. This SAI should be read in conjunction with such prospectus, a copy of which may be obtained without charge by contacting your financial intermediary or by calling the Fund at (833) 604-3163. You may also obtain a copy of the prospectus on the Securities and Exchange Commission’s (the “SEC”) web site at www.sec.gov.
Capitalized terms used but not defined in this SAI have the meanings ascribed to them in the prospectus.
TABLE OF CONTENTS
2 | ||||
2 | ||||
2 | ||||
5 | ||||
6 | ||||
10 | ||||
11 | ||||
12 | ||||
14 | ||||
14 | ||||
21 | ||||
23 |
1
GENERAL INFORMATION AND HISTORY
The Fund was organized as a Maryland corporation on November 26, 1986. Prior to commencing investment operations on January 21, 1987, the Fund had no operations other than matters relating to its organization and registration as a diversified, closed-end management investment company registered under the 1940 Act.
During the past five years, the Fund has not engaged in any business other than that of an investment company and has not been the subject of any bankruptcy, receivership or similar proceedings, or any other material reorganization, readjustment or succession.
USE OF PROCEEDS
Unless otherwise specified in a Prospectus Supplement, the Fund intends to invest the net proceeds of any offering of its securities in accordance with its investment objectives and policies as stated herein. Pending investment, the timing of which may vary depending on the size of the investment but in no case is expected to exceed 30 days, it is anticipated that the proceeds will be primarily invested in U.S. government securities, interest-bearing bank deposit accounts, or high quality, short-term money market securities. A delay in the anticipated use of proceeds could lower returns and reduce the amount of cash available to make dividend and interest payments on Preferred Stock and debt securities, respectively.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and general investment policies of the Fund are described in the prospectus. Additional information concerning the Fund’s investment policies is set forth below.
Fundamental Investment Restrictions
The following are fundamental investment restrictions of the Fund that may be changed only with approval of the holders of a “majority” (as defined in the 1940 Act) of the outstanding Common Stock and Preferred Stock voting together as one class:
1. Under normal conditions, more than 65% of the Fund’s total assets will be invested in securities of public utility companies engaged in the production, transmission or distribution of electric energy, gas or telephone services.
2. The Fund may not invest more than 25% of its total assets (valued at the time of investment) in securities of companies engaged principally in any one industry other than the utilities industry, which includes companies engaged in the production, transmission or distribution of electric energy or gas or in telephone services, except that this restriction does not apply to securities issued or guaranteed by the United States Government or its agencies or instrumentalities.
3. The Fund may not:
(a) invest more than 5% of its total assets (valued at the time of the investment) in the securities of any one issuer, except that this restriction does not apply to United States Government securities; or (b) acquire more than 10% of the outstanding voting securities of any one issuer (at the time of acquisition); except that up to 25% of the Fund’s total assets (at the time of investment) may be invested without regard to the limitations set forth in this restriction.
4. The Fund may not borrow money, except as permitted by the 1940 Act and the rules promulgated thereunder, as in effect from time to time, or interpretations or modifications thereof by the SEC, the staff of the SEC and other authority with appropriate jurisdiction.
2
5. The Fund may not pledge, mortgage or hypothecate its assets, except to secure indebtedness permitted by restriction 4 above. (The deposit in escrow of securities in connection with the writing of put and call options, collateralized loans of securities and collateral arrangements with respect to margin requirements for futures transactions, cleared swap and cleared security-based swap transactions and with respect to segregation of securities in connection with forward contracts are not deemed to be pledges or hypothecations for this purpose.)
6. The Fund may make loans of securities to other persons to the extent of not more than 33 1/3% of its total assets (valued at the time of the making of loans), and may invest without limitation in short-term obligations and publicly distributed obligations.
7. The Fund may not underwrite the distribution of securities of other issuers, although it may acquire securities that, in the event of a resale, might be required to be registered under the Securities Act, because the Fund could be regarded as an underwriter as defined in that act with respect to the resale.
8. The Fund may not purchase or sell real estate or any interest therein, except that the Fund may invest in securities secured by real estate or interests therein, such as mortgage pass-throughs, pay-throughs, collateralized mortgage obligations, and securities issued by companies (including partnerships and real estate investment trusts) that invest in real estate or interests therein.
9. The Fund may acquire securities of other investment companies to the extent (at the acquisition) of (i) not more than 3% of the outstanding voting stock of any one investment company, (ii) not more than 5% of the assets of the Fund in any one investment company and (iii) not more than 10% of the assets of the Fund in all investment companies (exclusive in each case of securities received as a dividend or as a result of a merger, consolidation or other plan of reorganization).
10. The Fund may not invest for the purpose of exercising control over or management of any company.
11. The Fund may not purchase securities on margin, or make short sales of securities, except the use of short-term credit necessary for the clearance of purchases and sales of portfolio securities, but it may make margin deposits in connection with transactions in options, futures, cleared swaps and cleared security-based swaps and options on futures.
12. The Fund may not purchase or sell commodities or commodity contracts, except that it may enter into (i) stock index futures transactions, interest rate futures transactions and options on such future transactions (ii) cleared swap and cleared security-based swap transactions and (iii) forward contracts on foreign currencies to the extent permitted by applicable law.
13. The Fund may not issue any security senior to its Common Stock, except that the Fund may borrow money subject to investment restriction 4 and except as permitted by the Charter.
For purposes of the thirteenth investment restriction, no amendment to the Charter that would alter or amend the Fund’s authority to issue senior securities will be effective unless such amendment is approved by the holders of a “majority” (as defined in the 1940 Act) of the outstanding Common Stock and Preferred Stock voting together as a single class.
Non-fundamental Investment Restrictions
The following are non-fundamental investment restrictions of the Fund, which may be changed by the Board without the approval of the Fund’s shareholders.
1. The Fund may not invest in securities subject to legal or contractual restrictions on resale, if, as a result of such investment, more than 10% of the Fund’s total assets would be invested in such securities.
2. The Fund may not acquire 5% or more of the outstanding voting securities of a public utility company.
3
Other Significant Investment Policies
The following are other significant investment policies and restrictions of the Fund, which may be changed by the Board without the approval of the Fund’s shareholders.
Fixed Income Securities. The Fund purchases a fixed income security only if, at the time of purchase, it is (i) rated investment grade by at least two of the following three nationally recognized statistical rating organizations: Moody’s, S&P and Fitch Ratings, Inc. or (ii) determined by the Investment Adviser to be of investment grade and not rated below investment grade by any of the aforementioned rating services. A fixed income security rated investment grade has a rating of BBB- or better by Fitch, Baa3 or better by Moody’s, or BBB- or better by S&P. In making its determination that a fixed income security is investment grade, the Investment Adviser will use the standards used by a nationally recognized statistical rating organization.
Rating Agency Guidelines. The Fund has issued Preferred Stock and Senior Notes, which are currently rated by Fitch. Fitch has established guidelines in connection with the ratings of the Fund’s Preferred Stock and Senior Notes. The rating agency guidelines relate to, among other things, the composition of the Fund’s portfolio, as well as restrictions on borrowing and the use of certain investment techniques by the Fund. In addition, the use of derivative transactions could have potential negative ratings implications if they adversely affect the asset coverage available to the Preferred Stock and Senior Notes. Currently, the Charter requires the Fund to comply with the rating agency’s guidelines, unless the Fund receives written confirmation from the rating agency that a proposed noncompliance will not adversely affect its then-current rating of the Preferred Stock and Senior Notes.
Options and Futures Transactions. The Fund may seek to increase its current return by writing covered options. In addition, through the writing and purchase of options and the purchase and sale of futures contracts and related options, the Fund may at times seek to hedge against a decline in the value of securities owned by it or an increase in the price of securities which it plans to purchase. See “Rating Agency Guidelines” above regarding the potential impact of derivative transactions on the rating of the Fund’s Preferred Stock and Senior Notes.
Swap and Swaption Transactions. The Fund may utilize interest rate and credit swaps and swaptions, subject to the following restrictions: (i) swaps and swaptions must be U.S. dollar denominated and used for hedging purposes only; (ii) no more than 5% of the Fund’s total assets, at the time of purchase, may be invested in time premiums paid for swaptions; (iii) the terms of all swaps and swaptions must conform to the standards of the ISDA Master Agreement published by the International Swaps and Derivatives Association, Inc.; and (iv) the counterparty must be a bank or broker-dealer firm regulated under the laws of the United States that is (A) on a list approved by the Board, (B) with capital of at least $100 million and (C) rated investment grade by both S&P and Moody’s. See “Rating Agency Guidelines” above regarding the potential impact of derivative transactions on the rating of the Fund’s Preferred Stock and Senior Notes.
Credit Derivatives. The market value of the Fund’s investments in credit derivatives and/or premiums paid therefor as a buyer of credit protection will not exceed 10% of the Fund’s total assets and the notional value of the credit exposure to which the Fund is subject when it sells credit derivatives will not exceed 33 1 / 3 % of the Fund’s total assets. See “Rating Agency Guidelines” above regarding the potential impact of derivative transactions on the rating of the Fund’s Preferred Stock and Senior Notes.
Foreign Securities. The Fund may not invest in securities issued by public utilities located outside the United States if, as a result of such investment, 20% or more of the Fund’s total assets would be invested in such securities.
Restricted Securities. The Fund may not invest in securities subject to legal or contractual restrictions on resale, if, as a result of such investment, more than 10% of the Fund’s total assets would be invested in such securities.
4
Percentage Restrictions
The Fund’s investment policies, techniques and restrictions that are set forth in the prospectus or this SAI may contain percentage restrictions with respect to the amount of the Fund’s assets that may be invested in a given manner. If any such percentage restriction is adhered to at the time a transaction is effected, later changes in percentages resulting from changes in value or in the number of outstanding securities of an issuer will not be considered a violation.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third fiscal quarters of each fiscal year (quarters ended January 31 and July 31) as an exhibit to its reports on Form NPORT-P. The Fund’s NPORT-P is available on the SEC’s website at www.sec.gov. In addition, the Fund’s Form NPORT-P is available without charge, upon request, by calling the Administrator toll-free at (833) 604-3163 and is available on the Fund’s website at www.dpimc.com/dnp.
5
MANAGEMENT OF THE FUND
The names, addresses and certain biographical information about the directors and officers of the Fund can be found in the Fund’s Annual Report to Shareholders for the period ended October 31, 2022 as filed with the SEC on Form N-CSR on January 6, 2023, as amended on February 28, 2023, except for the following:
• | At the December 2022 meeting of the Board of Directors, the Board elected Timothy P. Riordan to serve as Vice President of the Fund. Biographical information for Mr. Riordan appears below. |
Name, Address |
Position(s) Held with Fund and |
Principal Occupation(s) | ||
Timothy P. Riordan Robert W. Baird & Co. Incorporated 500 West Jefferson Street Louisville, KY 40202 Age: 58 |
Vice President of the Fund since January 2023 | Senior Vice President, Fund Administration, Robert W. Baird Co. Incorporated since 2019; Senior Vice President, J.J.B. Hilliard, W.L Lyons, LLC 2018-2019 (Vice President 1998-2018) |
Board Leadership Structure
The Board believes that the most appropriate leadership structure for the Fund is for the Chairman of the Board to be an independent director, in order to provide strong, independent oversight of the Fund’s management and affairs, including the Fund’s risk management function. Accordingly, while the Chief Executive Officer of the Fund will generally be a member of the Board, he or she will not normally be eligible to serve as Chairman of the Board. The independent Chairman of the Board presides at meetings of the shareholders, meetings of the Board and meetings of independent directors. In addition, the independent Chairman of the Board takes part in the meetings and deliberations of all committees of the Board, facilitates communication among directors and communication between the Board and the Fund’s management and is available for consultation with the Fund’s management between Board meetings. The Board has four standing committees, which are described below: the executive committee, the audit committee, the contracts committee, and the nominating and governance committee.
The executive committee of the Board is comprised of Mr. Vitale (Chairman), Mr. Burke, Ms. Moran and Ms. McNamara, and has authority, with certain exceptions, to exercise the powers of the Board between Board meetings.
The audit committee of the Board is comprised of all independent directors of the Fund (Mr. Burke, Chairman) and makes recommendations regarding the selection of the Fund’s independent registered public accounting firm and meets with representatives of that accounting firm to determine the scope of and review the results of each audit.
The contracts committee of the Board is comprised of all independent directors of the Fund (Ms. Moran, Chairperson) and makes recommendations regarding the Fund’s contractual arrangements for investment management and administrative services, including the terms and conditions of such contracts.
The nominating and governance committee of the Board is comprised of all independent directors of the Fund (Ms. McNamara, Chairperson) and selects nominees for election as directors, recommends individuals to be appointed by the Board as officers of the Fund and members of Board committees and makes recommendations regarding other Fund governance and Board administration matters. The committee also oversees the Board’s continuing education program, which includes quarterly presentations for directors covering a variety of topics, including, among other topics, (i) the industries and types of investments in which the Fund
6
invests, (ii) investment techniques utilized by the Fund, (iii) current developments in securities law and the mutual fund industry, (iv) best practices in corporate and mutual fund governance, and (v) enterprise risk management, cybersecurity, and other emerging issues.
In addition to the four standing committees, the DNP Board also has a special committee called the ATM committee, which is comprised of the members of the executive committee of the DNP Board (Mr. Vitale (Chairman), Mr. Burke, Ms. McNamara and Ms. Moran) and is responsible for certain oversight functions in connection with DNP’s ongoing “at-the-market” (“ATM”) offering program.
Risk Oversight
Consistent with its responsibility for oversight of the Fund, the Board, among other things, oversees risk management of the Fund’s investment program and business affairs directly and through the committee structure it has established. The Board has established the audit committee, the nominating and governance committee and the contracts committee to assist in its oversight functions, including its oversight of the risks the Fund faces. Each committee reports its activities to the Board on a regular basis. The audit committee charter provides that the audit committee is responsible for discussing with management the guidelines and policies that govern the process by which management assesses and manages the Fund’s major financial risk exposures. The contracts committee charter provides that in assessing whether the Fund’s investment advisory agreement and administration agreement should be continued, the contracts committee is to give careful consideration to the risk oversight policies of the Investment Adviser and the Fund’s Administrator, respectively.
Risks to the Fund include, among others, investment risk, credit risk, liquidity risk, valuation risk and operational risk, as well as the overall business risk relating to the Fund. The Board has adopted, and periodically reviews, policies, procedures and controls designed to address these different types of risks. The Board requires officers of the Fund to report to the full Board on a variety of matters at regular and special meetings of the Board and its committees, as applicable, including matters relating to risk management. The audit committee also receives reports from the Fund’s independent registered public accounting firm on internal control and financial reporting matters. On at least a quarterly basis, the Board meets with the Fund’s Chief Compliance Officer, including separate meetings with the Independent Directors in executive session, to discuss compliance matters and, on at least an annual basis, receives a report from the Chief Compliance Officer regarding the effectiveness of the Fund’s compliance program. The Board, with the assistance of Fund management, reviews investment policies and risks in connection with its review of the Fund’s performance. In addition, the Board receives reports from the Investment Adviser on the investments and securities trading of the Fund. With respect to valuation, the Board oversees a pricing committee comprised of Fund officers and Investment Adviser personnel and has approved fair valuation procedures applicable to valuing the Fund’s securities, which the Board and the audit committee periodically review. The Board and the audit committee also receive periodic reports on enterprise risk management from the chief risk officer of the Investment Adviser.
Nomination of Directors
The nominating and governance committee is composed of at least three directors—the committee is currently comprised of all independent directors of the Fund—and acts under a written charter that was most
recently amended on December 14, 2016. A copy of the charter is available on the Fund’s website at www.dpimc.com/dnp, and in print to any shareholder who requests it. None of the members of the nominating and governance committee are “interested persons” of the Fund as defined in Section 2(a)(19) of the 1940 Act. In identifying potential director nominees, the nominating and governance committee considers candidates recommended by one or more of the following sources: the Fund’s current directors, the Fund’s officers, the Fund’s shareholders and any other source the committee deems appropriate. The committee may, but is not required to, retain a third-party search firm at the Fund’s expense to identify potential candidates. Shareholders wishing to recommend candidates to the nominating and governance committee should submit such recommendations to the Secretary of the Fund, who will forward the recommendations to the committee for consideration.
7
Diversity Policy
The goal of the Fund is to have a board of directors comprising individuals with a diversity of business, educational and life experiences (including, without limitation, with respect to accounting and finance, business and strategic judgment, investment management and financial markets, and knowledge of the industries in which the Fund invests) that will enable them to constructively review, advise and guide management of the Fund. The annual Board self-evaluation process includes consideration of whether the Board’s composition represents an appropriate balance of skills and diversity for the Fund’s needs. In evaluating potential director nominees, including nominees recommended by shareholders, the nominating and governance committee considers such qualifications and skills as it deems relevant but does not have any specific minimum qualifications that must be met by a nominee. The committee considers, among other things:
• | the extent to which the candidate’s business, educational and life experiences will add to the diversity of the Board; |
• | whether the candidate will qualify as a director who is not an “interested person” of the Fund; |
• | the absence of any real or apparent conflict of interest that would interfere with the candidate’s ability to act in the best interests of the Fund and its shareholders; |
• | the contribution that the candidate can make to the Board by virtue of his or her education, business experience and financial expertise; |
• | the interplay of the candidate’s skills and experience with the skills and experience of other Board members; |
• | whether the candidate is willing to commit the time necessary to attend meetings and fulfill the responsibilities of a director; and |
• | the candidate’s personality traits, including integrity, independence, leadership, sound business judgment and the ability to work effectively with the other members of the Board. |
With respect to the re-nomination of incumbent directors, past service to the Board is also considered.
Retirement Policy
As amended on June 13, 2018, the bylaws of the Fund establish a mandatory retirement age of 78 for directors of the Fund. Specifically, no person who has attained the age of 78 years is eligible for election or reelection as a director, and no incumbent director who attains the age of 78 years is qualified to continue serving as a director following the adjournment of the next succeeding annual meeting of shareholders, and therefore his or her service on the Board will automatically terminate at such time.
Certain Fund Ownership and Compensation Information—Directors of the Fund
Certain Fund ownership and compensation information relating to each director as of October 31, 2022 can be found in the Fund’s Annual Report to Shareholders for the period ended October 31, 2022 as filed with the SEC on Form N-CSR on January 6, 2023, as amended on February 28, 2023.
Based on information provided to the Fund, including information furnished by the Fund’s service providers, as of October 31, 2022, none of the independent directors, or their immediate family members, owned any securities of the Investment Adviser, or any person (other than a registered investment company) directly or indirectly controlling, controlled by or under common control with the Investment Adviser.
Codes of Ethics
Each of the Fund and the Investment Adviser has adopted a Code of Ethics under Rule 17j-1 of the 1940 Act. The Codes impose significant restrictions on the ability of personnel subject to the Codes to engage in
8
personal securities transactions. Among other things, the Codes generally prohibit covered personnel from knowingly buying or selling securities (except for mutual funds, United States Government securities and money market instruments) that are being purchased, sold or considered for purchase or sale by the Fund unless the proposed purchases are approved in advance by the Investment Adviser’s compliance officer. The Codes also contain certain reporting requirements and compliance procedures.
The Codes are exhibits to the registration statement of which this Statement of Additional Information is a part and are available at the EDGAR Database on the SEC’s Internet site at www.sec.gov. The SEC file number for documents filed by the Fund under the 1940 Act is 811-4915.
Proxy Voting Policies and Procedures
The Fund has adopted proxy voting policies and procedures. The following is a summary description of those policies and procedures, the full text of which is available on the Fund’s website at www.dpimc.com/dnp.
Subject to the right of the Board to give the Investment Adviser written instructions as to the voting or non-voting of proxies on any matter presenting an actual or perceived conflict of interest as described below, the Fund has delegated the voting of proxies with respect to securities owned by it to the Investment Adviser. The Investment Adviser may delegate its proxy voting responsibilities to a proxy committee comprised of employees of the Investment Adviser, established from time to time by the Investment Adviser, and may engage one or more qualified, independent organizations to vote proxies on behalf of the Fund, subject in each case to compliance with these policies and procedures.
It is the intention of the Fund to exercise stock ownership rights in portfolio holdings in a manner that is reasonably anticipated to further the best economic interests of shareholders of the Fund. Accordingly, the Fund or its delegate(s) endeavors to analyze and vote all proxies that are considered likely to have financial implications, and, where appropriate, to participate in corporate governance, shareholder proposals, management communications and legal proceedings.
The Investment Adviser will generally vote in favor of management recommendations on routine matters. The Investment Adviser will analyze and vote on non-routine matters, including the adoption of anti-takeover measures, proxy contests for control, contested elections of directors, corporate governance matters and executive compensation matters, on a case-by-case basis, taking into account factors appropriate to each such matter. The Investment Adviser will generally vote against shareholder proposals on social issues, except where it determines that a different position would be in the clear economic interests of the Fund and its shareholders. The Investment Adviser may abstain from voting when it concludes that the effect on shareholders’ economic interests or the value of the portfolio holding is indeterminable or insignificant.
In exercising its voting discretion, the Investment Adviser will seek to avoid any actual or perceived conflicts of interest between the interests of Fund shareholders, on the one hand, and those of the Investment Adviser or any affiliated person of the Fund or the Investment Adviser or the Fund’s principal underwriter, on the other hand. The Investment Adviser will notify the Board promptly after becoming aware that any actual or potential conflict of interest exists, indicating how the Investment Adviser proposes to vote on the matter and its reasons for doing so. The Board may decide to (i) vote pursuant to the recommendation of the delegate, (ii) abstain from voting or (iii) rely on the recommendations of an established, independent third party with qualifications to vote proxies. The Investment Adviser may not waive any conflict of interest or vote any conflicted proxies without the prior written approval of the Board or its duly authorized representative.
Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30, 2022 is available (i) without charge, upon request, by calling (312) 263-2610 or on the Fund’s website at www.dpimc.com/dnp and (ii) on the SEC’s website at www.sec.gov.
9
Additional Information
Please refer to our most recent Definitive Proxy Statement on Schedule 14A, which is incorporated by reference into this SAI, for additional information regarding the management of the Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The Fund does not consider that any person “controls” the Fund within the meaning set out in Item 9 of Form N-2.
As of October 31, 2022, the officers and directors of the Fund owned in the aggregate less than 1% of each class of the Fund’s outstanding equity securities.
As of October 31, 2022, the only persons (including any “group” as that term is used in Section 13(d)(3) of the 1934 Act) who own of record, or are known by the Fund to own of record or beneficially, more than 5% of any class of the Fund’s outstanding equity securities (as determined in accordance with Rule 13d-3 under the 1934 Act) are the owners of the Fund’s Preferred Stock identified in the Fund’s most recent Definitive Proxy Statement on Schedule 14A as filed with the SEC on Schedule 14A on January 13, 2023. The information therein is based on information provided in Schedule 13G and Form 4 filings made with the SEC, or other information provided to the Fund by each of the persons listed.
10
PORTFOLIO MANAGERS
Other Accounts Managed by Portfolio Managers
There may be certain inherent conflicts of interest that arise in connection with the portfolio managers’ management of the Fund’s investments and the investments of any other accounts they manage. Such conflicts could include aggregation of orders for all accounts managed by a particular portfolio manager, the allocation of purchases across all such accounts, the allocation of IPOs and any soft dollar arrangements that the Investment Adviser may have in place that could benefit the Fund and/or such other accounts. The Investment Adviser has adopted policies and procedures designed to address any such conflicts of interest to ensure that all management time, resources and investment opportunities are allocated equitably.
The table below identifies (as of October 31, 2022), for each portfolio manager, the number of accounts, other than the Fund for which he or she has day-to-day management responsibilities and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles, and other accounts. As of October 31, 2022, the Fund’s portfolio managers did not manage any accounts with respect to which the advisory fee is based on the performance of the account, nor do they manage any hedge funds.
Registered Investment Companies(1) |
Other Pooled Investment Vehicles(2) |
Other Accounts(3) | ||||||||||||||||||||||
Name of Portfolio Manager |
Number of Accounts |
Total Assets (in millions) |
Number of Accounts |
Total Assets (in millions) |
Number of Accounts |
Total Assets (in millions) |
||||||||||||||||||
Connie M. Luecke |
2 | $ | 588 | 2 | $ | 260 | 0 | $ | 0 | |||||||||||||||
Daniel J. Petrisko |
1 | $ | 22 | 0 | $ | 0 | 16 | $ | 930 | |||||||||||||||
Kyle P. West |
0 | $ | 0 | 0 | $ | 0 | 0 | $ | 0 |
(1) | Registered Investment Companies include all open and closed-end mutual funds. For Registered Investment Companies, assets represent net assets of all open-end investment companies and gross assets of all closed-end investment companies. |
(2) | Other Pooled Investment Vehicles include, but are not limited to, securities of issuers exempt from registration under Section 3(c) of the 1940 Act, such as private placements and hedge funds. |
(3) | Other Accounts include, but are not limited to, individual managed accounts, separate accounts, institutional accounts, pension funds and collateralized bond obligations. |
Compensation of Portfolio Managers
The following is a description of the compensation structure, as of October 31, 2022 (with an update as of March 31, 2021 indicated therein), of the Fund’s portfolio managers. The Investment Adviser is committed to attracting and retaining the highest caliber employees and investment talent. The Investment Adviser’s compensation and benefits program is comprehensive and designed to reward performance and commitment to shareholders. Portfolio managers receive a competitive base salary, an incentive bonus opportunity, and a benefits package.
Following is a more detailed description of the Investment Adviser’s compensation structure:
• | Base Salary – Each individual is paid a fixed base salary, which is designed to be competitive in light of the individual’s experience and responsibilities. Management uses independent, third-party compensation surveys of the investment industry to evaluate competitive market compensation for its employees. |
• | Incentive Bonus – Annual incentive payments for investment personnel are based on targeted compensation levels, adjusted for profitability and investment performance factors, and a subjective assessment of contribution to the team effort. Individual payments are assessed using comparisons of actual investment performance with specific peer group or index measures. For compensation |
11
purposes, a fund’s performance is generally measured over one-, three-, and five-year periods and an individual manager’s participation is based on the performance of each fund/account managed. The short-term incentive payment is generally paid in cash, but a portion may be payable in Virtus restricted stock units or as deferred cash that appreciates or depreciates in value based on the rate of return of one or more mutual funds managed or advised by the investment professional. The “deferred cash” component was added as of March 31, 2021. |
• | Other Benefits – Employees are also eligible to participate in broad-based plans offered by Virtus, including 401(k), health, and other employee benefit plans. |
While portfolio manager compensation contains a performance component, this component is adjusted to reward investment personnel for managing within the stated framework and for not taking unnecessary risk. This approach helps ensure that investment management personnel remain focused on managing and acquiring securities that correspond to a fund’s mandate and risk profile and are discouraged from taking on more risk and unnecessary exposure to chase performance for personal gain. The Investment Adviser believes it has appropriate controls in place to handle any potential conflicts that may result from a substantial portion of portfolio manager compensation being tied to performance.
Portfolio Manager Ownership of Fund Securities. The following table sets forth the dollar range of equity securities in the Fund beneficially owned, as of October 31, 2022 by each of the portfolio managers identified in the Fund’s prospectus.
Name of Portfolio Manager |
Dollar Range of Equity Securities in the Fund | |
Connie M. Luecke |
$100,001-$500,000 | |
Daniel J. Petrisko |
$10,001-$50,000 | |
Kyle P. West |
$10,001-$50,000 |
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Investment Adviser has discretion to select brokers and dealers to execute portfolio transactions initiated by the Investment Adviser. The Fund paid brokerage commissions in the aggregate amount of $337,585, $409,957 and $428,025 during the fiscal years ended October 31, 2022, 2021 and 2020, respectively, not including the gross underwriting spread on securities purchased in underwritten public offerings.
The Fund did not pay any brokerage commissions during the fiscal years ended October 31, 2022, 2021 or 2020 to any broker that (1) is an affiliated person of the Fund, (2) is an affiliated person of an affiliated person of the Fund or (3) has an affiliated person that is an affiliated person of the Fund, the Investment Adviser or Wells Fargo Securities, except for the following commissions paid to Wells Fargo Securities:
Fiscal Year Ended October 31 |
Amount of Brokerage Commissions |
|||
2020 |
$ | 22,885 | ||
2021 |
$ | 379 | ||
2022 |
$ | 9,767 |
Decisions concerning the execution of portfolio security transactions, including the selection of the market and the executing firm, are made by the Investment Adviser. The Investment Adviser is also responsible for the execution of transactions for all other accounts managed by it. The Investment Adviser places the portfolio security transactions of the Fund and of all other accounts managed by it for execution with many firms. The Investment Adviser uses its best efforts to obtain execution of portfolio security transactions at prices which are advantageous to the Fund and at reasonably competitive spreads or (when a disclosed commission is being charged) at reasonably competitive commission rates. In seeking such execution, the Investment Adviser will use its best judgment in evaluating the terms of a transaction, and will give consideration to various relevant factors,
12
including without limitation the full range and quality of the executing firm’s services, the value of the brokerage and research services provided, the responsiveness of the brokerage firm to the Investment Adviser, the size and type of the transaction, the nature and character of the market for the security, the confidentiality, speed and certainty of effective execution required for the transaction, the general execution and operational capabilities of the executing firm, the reputation, reliability, experience and financial condition of the firm, the value and quality of the services rendered by the firm in this and other transactions, and the reasonableness of the spread or commission, if any.
Transactions on stock exchanges and other agency transactions involve the payment of negotiated brokerage commissions. Such commissions vary among different broker-dealer firms, and a particular broker-dealer may charge different commissions according to such factors as the difficulty and size of the transaction and the volume of business done with such broker-dealer. Transactions in foreign securities often involve the payment of brokerage commissions, which may be higher than those in the United States. There is generally no stated commission in the case of securities traded in the over-the-counter markets, but the price paid or received usually includes an undisclosed dealer markup or markdown. In an underwritten offering the price paid often includes a disclosed fixed commission or discount retained by the underwriter or dealer.
Fixed-income obligations which may be purchased and sold by the Fund are generally traded in the over-the-counter market on a net basis (i.e., without commission) through broker-dealers or banks acting for their own account rather than as brokers, or otherwise involve transactions directly with the issuers of such obligations. The Fund may also purchase fixed-income and other securities from underwriters, the cost of which may include undisclosed fees and concessions to the underwriters.
Although spreads or commissions paid on portfolio security transactions will, in the judgment of the Investment Adviser, be reasonable in relation to the value of the services provided, commissions exceeding those which another firm might charge may be paid to broker-dealers who were selected to execute transactions on behalf of the Investment Adviser’s clients in part for providing brokerage and research services to the Investment Adviser.
In selecting brokers or dealers to execute portfolio transactions and in evaluating the best net price and execution available, the Investment Adviser is authorized to consider “brokerage and research services” (as those terms are defined in Section 28(e) of the 1934 Act), statistical quotations, specifically the quotations necessary to determine the Fund’s net asset value, and other information provided to the Fund and/or to the Investment Adviser (or their affiliates). The Investment Adviser is also authorized to cause the Fund to pay to a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction. The Investment Adviser must determine in good faith, however, that such commission was reasonable in relation to the value of the brokerage and research services provided, viewed in terms of that particular transaction or in terms of all the accounts over which the Investment Adviser exercises investment discretion. It is possible that certain of the services received by the Investment Adviser attributable to a particular transaction will benefit one or more other accounts for which investment discretion is exercised by the Investment Adviser.
Securities considered as investments for the Fund may also be appropriate for other investment accounts managed by the Investment Adviser or its affiliates. Whenever decisions are made to buy or sell securities by the Fund and one or more of such other accounts simultaneously, the Investment Adviser will allocate the security transactions (including “hot” issues) in a manner which it believes to be equitable under the circumstances. As a result of such allocations, there may be instances where the Fund will not participate in a transaction that is allocated among other accounts. Additionally, trades executed by different firms, including the Investment Adviser, will not be aggregated and allocated as to price; thus, there may be instances where the Fund does not pay or receive the same price as other investment accounts managed by the Investment Adviser. While these aggregation and allocation policies could have a detrimental effect on the price or amount of the securities
13
available to the Fund from time to time, it is the opinion of the directors of the Fund that the benefits received from the Investment Adviser’s organization outweigh any disadvantage that may arise from exposure to simultaneous transactions.
During the Fund’s last fiscal year, pursuant to agreements or understandings with brokers or otherwise through an internal allocation procedure, the Investment Adviser directed certain of the Fund’s brokerage transactions to certain brokers because of the research services provided by those brokers as described above. The aggregate principal amount of the transactions involved was $731,476,280 and the aggregate amount of the related commissions was $337,585 for fiscal year ended October 31, 2022.
DETERMINATION OF NET ASSET VALUE
The net asset value of a share of Common Stock is determined as of the time of the close of the NYSE (normally 4:00 p.m., Eastern time) on each day on which the NYSE is open for trading. The net asset value of a share of Common Stock is calculated by dividing the value of the Fund’s assets (the value of the Fund’s portfolio securities plus cash and other assets), less the Fund’s liabilities (including dividends payable on Preferred Stock and interest and, as applicable, principal, payable on Borrowings) and less the aggregate liquidation value of the outstanding Preferred Stock, by the number of outstanding shares of Common Stock. The Fund’s net asset value per share of Common Stock is published on a daily basis.
For purposes of determining the Fund’s net asset value, equity securities traded on a national or foreign securities exchange or traded over-the counter and quoted on the NASDAQ Stock Market are valued at the last reported sale price or, if there was no sale on the valuation date, then the security is valued at the mean of the bid and ask prices, in each case using valuation data provided by an independent pricing service. Equity securities traded on more than one securities exchange shall be valued at the last sale price on the business day as of which such value is being determined at the close of the exchange representing the principal market for such securities. If there was no sale on the valuation date, then the security is valued at the mean of the closing bid and ask prices of the exchange representing the principal market for such securities. Debt securities are valued at the mean of the bid and ask prices provided by an independent pricing service when such prices are believed to reflect the fair value of such securities. Any securities for which it is determined that market prices are unavailable or inappropriate are valued at a fair value using a procedure determined in good faith by the Board.
Generally, trading in the foreign securities owned by the Fund is substantially completed each day at various times prior to the close of the NYSE. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the date of valuation at the mean of the quoted bid and asked prices of such currencies, as supplied by an independent quotation service as of the time of the close of the NYSE (normally 4:00 p.m., Eastern time).
TAXES
The following discussion is a brief summary of certain U.S. federal income tax considerations affecting the Fund and its U.S. shareholders. No attempt is made to present a detailed explanation of all U.S. federal, state, local and foreign tax concerns affecting the Fund and its shareholders (including shareholders owning a large position in the Fund), and the discussions set forth here and in the prospectus do not constitute tax advice. Investors are urged to consult their tax advisors with any specific questions relating to federal, state, local and foreign taxes. The discussion reflects applicable tax laws of the United States as of the date of this Statement of Additional Information, which tax laws may be changed or subject to new interpretations by the courts or the IRS retroactively or prospectively.
Taxation of the Fund
The Fund has elected to be treated, has qualified and intends to continue to qualify each year for treatment as a regulated investment company (a “RIC”) under Subchapter M of the Code. Accordingly, the Fund must,
14
among other things, (i) derive in each taxable year at least 90% of its gross income (including tax-exempt interest) from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, other income (including but not limited to gains from options, futures and forward contracts) derived with respect to its business of investing in such stock, securities, or currencies and income from interests in qualified publicly traded partnerships; (ii) diversify its holdings so that, at the end of each quarter of each taxable year (a) at least 50% of the market value of the Fund’s total assets is represented by cash and cash items, United States Government securities, the securities of other RICs and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund’s total assets and not more than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the market value of the Fund’s total assets is invested in the securities (other than United States Government securities and the securities of other RICs) of (I) any one issuer, (II) any two or more issuers that the Fund controls and that are determined to be engaged in the same business or similar or related trades or businesses or (III) one or more qualified publicly traded partnerships; and (iii) distribute in each taxable year at least 90% of the sum of its investment company taxable income (as that term is defined in the Code, but without regard to the deduction for dividends paid) and tax-exempt interest in accordance with the timing requirements imposed by the Code. To the extent it qualifies for treatment as a RIC and satisfies the above-mentioned distribution requirement, the Fund will not be subject to federal income tax on income paid to its shareholders in the form of dividends or capital gain distributions.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, the Fund must distribute (or be deemed to have distributed) by December 31 of each calendar year an amount at least equal to the sum of (i) 98% of its ordinary income (not taking into account any capital gain or loss) for the calendar year, (ii) 98.2% of its capital gain net income (which is the excess of its realized net long-term capital gain over its realized net short-term capital loss or the excess of its realized net short-term capital gain over its realized net long-term capital loss), generally computed on the basis of the one-year period ending on October 31 of such year, after reduction by any available capital loss carryforwards, plus (iii) 100% of any ordinary income and capital gain net income from the prior year (as previously computed) that was not paid during such year and on which the Fund paid no federal income tax. While the Fund intends to distribute any income and capital gain in the manner necessary to minimize imposition of the 4% excise tax, there can be no assurance that sufficient amounts of the Fund’s taxable income and capital gain will be distributed to avoid entirely the imposition of the tax. In that event, the Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirement.
A dividend, paid from earnings and profits, will be treated as paid during a calendar year if it is paid during that calendar year or declared by the Fund in October, November or December of that year, payable to shareholders of record on a date during such a month and paid by the Fund during January of the following year. Any such dividends paid during January of the following year will be deemed to be received on December 31 of the year the dividends are declared, rather than when the dividends are received.
If the Fund does not qualify for treatment as a RIC for any taxable year, the Fund’s taxable income will be subject to corporate income taxes, and all distributions from earnings and profits, including distributions of net capital gain (if any), will be taxable to the shareholders as ordinary income. Such distributions generally will be eligible (i) for the dividends received deduction in the case of corporate shareholders and (ii) for treatment as “qualified dividends” in the case of individual shareholders. In addition, in order to requalify for taxation as a RIC, the Fund may be required to recognize unrealized gains, pay substantial taxes and interest and make certain distributions.
If the Fund utilizes leverage through borrowings, it may be restricted by loan covenants with respect to the declaration and payment of dividends in certain circumstances.
15
The Fund’s Investments
The Fund’s investments in options, futures contracts, hedging transactions, forward contracts (to the extent permitted) and certain other transactions will be subject to special tax rules (including mark-to-market, constructive sale, straddle, wash sale, short sale and other rules), the effect of which may be to accelerate income to the Fund, defer Fund losses, cause adjustments in the holding periods of securities held by the Fund, convert dividends that would otherwise be eligible for the dividends received deduction (for corporate shareholders) or for treatment as qualified dividend income (for individual shareholders) as ineligible for such treatment, convert capital gain into ordinary income and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund may be required to limit its activities in options, futures contracts and other transactions in order to enable it to maintain its RIC status.
Some of the debt obligations acquired by the Fund may be treated as debt obligations that are issued with original issue discount (“OID”). Such OID generally will be included in income in the taxable year of accrual and before the Fund receives any corresponding cash payments. Since, in certain circumstances, the Fund may recognize income before receiving cash representing such income, it may have difficulty making distributions in the amounts necessary to satisfy the requirements for maintaining RIC status and for avoiding income and excise taxes.
Accordingly, the Fund may be required to borrow money or dispose of securities under disadvantageous circumstances in order to generate cash to satisfy the Fund’s distribution requirements.
Any recognized gain attributable to market discount on long-term debt obligations (i.e., obligations with a term of more than one year) purchased by the Fund is taxable as ordinary income, unless the Fund makes an election to accrue market discount on a current basis. A long-term debt obligation generally is treated as acquired at a market discount if purchased after its original issue at a price less than (i) the stated principal amount payable at maturity, in the case of any obligation that does not have OID or (ii) the sum of the issue price and any OID that accrued before the obligation was purchased, in the case of an obligation that does have OID, in each case subject to a de minimis exclusion.
If the Fund invests (directly or indirectly through a REIT) in residual interests in real estate mortgage investment conduits (“REMICs”), a portion of the Fund’s income attributable to such interests will be subject to a U.S. federal income tax in all events. “Excess inclusion income” of the Fund generated by a residual interest in a REMIC will be allocated to shareholders of the Fund in proportion to the dividends received by the shareholders of the Fund. Excess inclusion income generally (i) cannot be offset by net operating losses, (ii) will constitute unrelated business taxable income to certain tax exempt investors and (iii) in the case of a foreign shareholder, will not qualify for any reduction in U.S. federal withholding tax. In addition, if the shareholders of the Fund include a “disqualified organization” (such as certain governments or governmental agencies) the Fund may be liable for a tax on the excess inclusion income allocable to the disqualified organization.
The Fund’s transactions in foreign currencies, foreign currency-denominated debt obligations and certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned.
Income received by the Fund with respect to foreign securities may be subject to withholding and other taxes imposed by foreign countries. Tax conventions may reduce or eliminate such taxes. Generally, shareholders will not be entitled to claim a credit or deductions with respect to foreign taxes.
If the Fund acquires any equity interest in certain foreign corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, certain rents and royalties, or capital gains) or that hold at least 50% of their assets in investments producing such income (“Passive Foreign
16
Investment Companies” or “PFICs”), the Fund could be subject to U.S. federal income tax and additional interest charges on “excess distributions” received from such companies or on gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. The Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. An election generally may be available that would ameliorate these adverse tax consequences, but any such election could require the Fund to recognize taxable income or gain (subject to tax distribution requirements) without the concurrent receipt of cash. These investments could also result in the treatment of associated capital gains as ordinary income. The Fund may limit and/or manage its holdings in PFICs to limit its tax liability or maximize its return from these investments.
Taxation of Shareholders
Distributions by the Fund with respect to its Common Stock will constitute dividends to the extent of the Fund’s current and accumulated earnings and profits as calculated for federal income tax purposes. Distributions of any taxable net investment income and net short-term capital gain will be taxable as ordinary income (except to the extent that a reduced capital gains tax rate applies to qualified dividend income). Distributions of the Fund’s net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss), if any, that are properly reported by the Fund will be taxable to shareholders as long-term capital gains, regardless of the length of time they held their shares. So long as the Fund has capital loss carryforwards, distributions derived from capital gains in the Fund’s portfolio may constitute ordinary income, rather than capital gains, to shareholders.
Subject to certain conditions and limitations, under applicable federal income tax provisions, a corporation receiving dividends with respect to stock it owns in another corporation is allowed a deduction against a portion of such dividend income received (the “Dividends Received Deduction”). The Fund expects to receive dividends with respect to some or all of the stocks in other corporations held by the Fund, and the Fund may designate such dividends as eligible for the Dividends Received Deduction only to the extent that the Fund receives dividends for which the Fund would be entitled to the Dividends Received Deduction if the Fund were a regular corporation and not a RIC. A corporation that owns Common Stock or Preferred Stock generally will be entitled to a Dividends Received Deduction with respect to a designated portion of the dividends it receives from the Fund.
For dividends received by the Fund to be eligible for designation for the Dividends Received Deduction, the dividends must be paid by a domestic corporation that is subject to U.S. income tax and the Fund must hold the stock of such corporation for at least 46 days during the 91-day period beginning 45 days before the ex-dividend date for the stock (91 days during the 181-day period for certain preferred stock). The Fund’s holding period for stock will in general not include any period for which the Fund holds an option to sell or is the writer of an option to buy substantially identical stock, although there exists an exception for certain options written by the Fund, the exercise prices of which are not below the market prices of the underlying securities at the times the options are written. The Dividends Received Deduction is reduced for dividends received from debt-financed portfolio stock by a percentage related to the amount of debt incurred to purchase such stock.
In order for dividends effectively designated by the Fund as eligible for the Dividends Received Deduction to qualify for the Dividends Received Deduction when received by a particular shareholder, the shareholder must, among other things, be a corporation meeting the 46-day (or 91-day) holding period requirement described above with respect to its Fund shares. The Dividends Received Deduction will be reduced in the case of a shareholder who has incurred indebtedness, or is treated as having incurred indebtedness, that is “directly attributable” to the acquisition or carrying of the shares. The basis of a shareholder’s shares may be reduced in the case of certain “extraordinary dividends” eligible for the Dividends Received Deduction by an amount equal to the non-taxed portion of such dividends, although it is expected that such extraordinary dividends will be paid only in unusual circumstances.
17
Under current law, certain income distributions properly designated and paid by the Fund to individual taxpayers are taxed at rates equal to those applicable to net long-term capital gains. This tax treatment applies only if certain holding period requirements and other requirements are satisfied by the shareholder and the dividends are attributable to qualified dividends received by the Fund itself. Corporate taxpayers are taxed at ordinary income tax rates on dividends not eligible for the Dividends Received Deduction. For this purpose, “qualified dividends” means dividends received by the Fund from U.S. corporations and qualifying foreign corporations, provided that the Fund satisfies certain holding period and other requirements in respect of the stock of such corporations.
In the case of securities lending transactions, payments in lieu of dividends are not qualified dividends. Dividends received by the Fund from REITs are qualified dividends eligible for this lower tax rate only in limited circumstances.
A dividend will not be treated as qualified dividend income (whether received by the Fund or paid by the Fund to a shareholder) if (1) the dividend is received with respect to any share held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or fewer than 90 days during the associated 181-day period, in the case of dividends attributable to periods in excess of 366 days paid with respect to preferred stock), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property or (3) if the recipient elects to have the dividend treated as investment income for purposes of the limitation on deductibility of investment interest.
The benefits of the reduced tax rates applicable to long-term capital gains and qualified dividend income may be impacted by the application of the alternative minimum tax to individual shareholders.
Distributions in excess of the Fund’s current or accumulated earnings and profits will first reduce the adjusted tax basis of a holder’s shares and, after such adjusted tax basis is reduced to zero, will constitute capital gain to such holder (assuming the shares are held as a capital asset). For non-corporate taxpayers, under current law, distributions of investment company taxable income (other than qualified dividend income), including distributions of short-term capital gains, currently will be taxed at a maximum rate of 37%, while net capital gain generally will be taxed at a maximum rate of 20%. For purposes of determining whether distributions are out of the Fund’s current or accumulated earnings and profits, the Fund’s earnings and profits will be allocated first to the Fund’s Preferred Stock and then to the Fund’s Common Stock.
An additional 3.8% Medicare tax will be imposed on certain net investment income (including ordinary dividends and capital gain distributions received from the Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in the case of an estate or trust) exceeds a threshold amount.
The Fund may retain for reinvestment all or part of its net capital gain. If any such gain is retained, the Fund will be subject to a tax at a rate of 21% of such amount. In that event, the Fund expects to designate the retained amount as undistributed capital gain in a notice to its shareholders, each of whom (i) will be required to include in income for tax purposes as long-term capital gain its share of such undistributed amounts, (ii) will be entitled to credit its proportionate share of the tax paid by the Fund against its U.S. federal income tax liability and to claim refunds to the extent that the credit exceeds such liability and (iii) will increase its basis in its shares of the Fund by an amount equal to 79% of the amount of undistributed capital gain included in such shareholder’s gross income.
The price of shares purchased at any time may reflect the amount of a forthcoming distribution. Those purchasing shares just prior to a distribution will receive a distribution which will be taxable to them even though it represents in part a return of invested capital.
18
The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than 12 months. Otherwise, the gain or loss on the taxable disposition of Fund shares will be treated as short-term capital gain or loss. Long-term capital gain rates applicable to individuals currently are taxed at a maximum rate of 20%. Any loss realized upon the sale or exchange of Fund shares with a holding period of 6 months or less will be treated as a long-term capital loss to the extent of any capital gain dividends received with respect to such shares. For purposes of determining whether shares have been held for six months or less, the holding period is suspended for any periods during which the holder’s risk of loss is diminished as a result of holding one or more other positions in substantially similar or related property, or through certain options or short sales. In addition, all or a portion of a loss realized on a redemption or other disposition of Fund shares may be disallowed under “wash sale” rules to the extent the shareholder acquires other substantially identical shares (whether through the reinvestment of distributions or otherwise) within the period beginning 30 days before the redemption or other disposition of the loss shares and ending 30 days after such date. Any disallowed loss will result in an adjustment to the shareholder’s tax basis in some or all of the other shares acquired.
Sales charges paid upon a purchase of shares cannot be taken into account for purposes of determining gain or loss on a sale of shares before the 91st day after their purchase to the extent a sales charge is reduced or eliminated in a subsequent acquisition of shares of the Fund (or of another fund) before January 31 of the next calendar year pursuant to the reinvestment or exchange privilege. Any disregarded amounts will result in an adjustment to the shareholder’s tax basis in some or all of any other shares acquired.
Shareholders may be entitled to offset their capital gain dividends with capital loss. There are a number of statutory provisions affecting when capital loss may be offset against capital gain, and limiting the use of loss from certain investments and activities. Accordingly, shareholders with capital loss are urged to consult their tax advisors.
Dividends and distributions on the Fund’s shares generally are subject to federal income tax as described herein to the extent they do not exceed the Fund’s realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder’s investment. Such distributions are likely to occur in respect of shares purchased at a time when the Fund’s net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when the Fund’s net asset value also reflects unrealized losses.
As discussed above, certain dividends declared in October, November or December and paid in the following January will be taxed to shareholders as if received on December 31 of the year in which they were declared. In addition, certain other distributions made after the close of a taxable year of the Fund may be “spilled back” and treated as paid by the Fund (except for purposes of the 4% excise tax) during such prior taxable year. In such case, however, shareholders will be treated as having received such dividends in the taxable year in which the distributions were actually made.
Amounts paid by the Fund to individuals and certain other shareholders who have not provided the Fund with their correct taxpayer identification number (“TIN”) and certain certifications required by the IRS, as well as shareholders with respect to whom the Fund has received certain information from the IRS or a broker, may be subject to “backup withholding” of federal income tax from the Fund’s ordinary income dividends and other distributions as well as the gross proceeds of sales of shares, at a rate equal to the fourth lowest rate of tax applicable to a single individual (currently 24%). An individual’s TIN generally is his or her social security number. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from payments made to a shareholder may be refunded or credited against such shareholder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS.
The Fund will inform shareholders of the source and tax status of all distributions promptly after the close of each calendar year. The IRS has taken the position that if a RIC has more than one class of shares, it may
19
designate distributions made to each class in any year as consisting of no more than that class’s proportionate share of a particular type of income for that year, including ordinary income and net capital gain. A class’s proportionate share of a particular type of income for a year is determined according to the percentage of total dividends paid by the RIC during that year to the class.
The Fund will be required to withhold U.S. tax (at a 30% rate) on payments of dividends made to certain non-U.S. entities that fail to comply with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information to the Fund to enable the Fund to determine whether withholding is required.
The foregoing discussion does not address the special tax rules applicable to certain classes of investors, such as tax-exempt entities, foreign investors, insurance companies and financial institutions. Shareholders should consult their own tax advisors with respect to special tax rules that may apply in their particular situations, as well as the state, local and, where applicable, foreign tax consequences of investing in the Fund.
20
FINANCIAL STATEMENTS
The financial statements listed below are incorporated herein by reference from the Fund’s Annual Report to Shareholders for the year ended October 31, 2022 as filed on Form N-CSR with the SEC on January 6, 2023, as amended on February 28, 2023 (File No. 811-4915). All other portions of the Annual Report to Shareholders are not incorporated herein by reference and are not part of the Registration Statement. A copy of the Annual Report to Shareholders may be obtained without charge by writing to the Fund at its address at 200 South Wacker Drive, Chicago, Illinois 60606 or by calling the Administrator toll-free at (833) 604-3163.
Annual Report: | ||||
- | Report of independent registered public accounting firm | |||
- | Schedule of Investments at October 31, 2022 | |||
- | Statement of Assets And Liabilities at October 31, 2022 | |||
- | Statement of Operations for the fiscal year ended October 31, 2022 | |||
- | Statement of Changes in Net Assets for the fiscal years ended October 31, 2022 and 2021 | |||
- | Statement of Cash Flows for the fiscal year ended October 31, 2022 | |||
- | Financial Highlights - Selected Per Share Data and Ratios | |||
- | Notes to Financial Statements |
21
INCORPORATION BY REFERENCE
As noted above, this statement of additional information is part of a registration statement filed with the SEC. Pursuant to the final rule and form amendments adopted by the SEC on April 8, 2020 to implement certain provisions of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the Fund is permitted to “incorporate by reference” the information filed with the SEC, which means that the Fund can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this SAI, and later information that the Fund files with the SEC will automatically update and supersede this information.
The documents listed below, and any reports and other documents subsequently filed with the SEC pursuant to Section 30(b)(2) of the 1940 Act and Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering will be incorporated by reference into this statement of additional information and deemed to be part of the registration statement from the date of the filing of such reports and documents:
• | the Fund’s Statement of Additional Information, dated March 3, 2023, filed with the accompanying Prospectus; |
• | the Fund’s Annual Report on Form N-CSR, dated October 31, 2022, filed on January 6, 2023, as amended on February 28, 2023; |
• | the Fund’s Semi-Annual Report on Form N-CSRS, dated April 30, 2022, filed on June 24, 2022; |
• | the Fund’s Definitive Proxy Statement on Schedule 14A, filed on January 13, 2023; |
• | the Financial Highlights in the Fund’s Annual Report on Form N-CSR, dated October 31, 2015, filed on December 30, 2015; |
• | the Fund’s description of Common Shares on Form 8-A, filed on January 9, 1987. |
You may obtain copies of any information incorporated by reference into this Prospectus Supplement, at no charge, by calling (833) 604-3163 toll-free, by writing to the Fund at 200 South Wacker Drive, Suite 500, Chicago, Illinois 60606 or visiting the Fund’s website (www.dpimc.com/dnp). The Fund’s periodic reports filed pursuant to Section 30(b)(2) of the 1940 Act and Sections 13 and 15(d) of the Exchange Act, as well as this Prospectus Supplement, accompanying Prospectus and the Statement of Additional Information, are available on the Fund’s website (www.dpimc.com/dnp).
22
APPENDIX A
CREDIT RATINGS
MOODY’S INVESTORS SERVICE, INC.
Long-Term Obligation Ratings
Moody’s long-term ratings are opinions of the relative credit risk of financial obligations with an original maturity of one year or more. They address the possibility that a financial obligation will not be honored as promised. Such ratings use Moody’s Global Scale and reflect both the likelihood of default and any financial loss suffered in the event of default.
Aaa: Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.
Aa: Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A: Obligations rated A are considered upper-medium grade and are subject to low credit risk.
Baa: Obligations rated Baa are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics.
Ba: Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.
B: Obligations rated B are considered speculative and are subject to high credit risk.
Caa: Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
Ca: Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
C: Obligations rated C are the lowest rated class and are typically in default, with little prospect for recovery of principal or interest.
Note: Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
Short-Term Obligation Ratings
Moody’s short-term ratings are opinions of the ability of issuers to honor short-term financial obligations. Ratings may be assigned to issuers, short-term programs or to individual short-term debt instruments. Such obligations generally have an original maturity not exceeding thirteen months, unless explicitly noted.
P-1: Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2: Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP: Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR’S FINANCIAL SERVICES LLC
Long-Term Issue Credit Ratings
S&P’s issue credit ratings are based, in varying degrees, on S&P’s analysis of the following considerations:
• | The likelihood of payment--the capacity and willingness of the obligor to meet its financial commitments on an obligation in accordance with the terms of the obligation; |
23
• | The nature and provisions of the financial obligation, and the promise we impute; and |
• | The protection afforded by, and relative position of, the financial obligation in the event of a bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors’ rights. |
S&P’s issue ratings are an assessment of default risk but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)
Investment Grade
AAA: An obligation rated AAA has the highest rating assigned by S&P. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
AA: An obligation rated AA differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.
A: An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.
BBB: An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
Speculative Grade
Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB: An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces 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: An obligation rated B is 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: An obligation rated CCC is currently vulnerable to nonpayment, and is 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: An obligation rated CC is currently highly vulnerable to nonpayment. The CC rating is used when a default has not yet occurred but S&P expects default to be a virtual certainty, regardless of the anticipated time to default.
C: A C rating is assigned to obligations that are currently highly vulnerable to nonpayment, and the obligation is expected to have lower relative seniority or lower ultimate recovery compared with obligations that are rated higher.
24
D: An obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category is used when payments on an obligation are not made on the date due, unless S&P believes that
such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30 calendar days. The D rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. An obligation’s rating is lowered to D if it is subject to a distressed exchange offer.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
NR: NR indicates no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.
Short-Term Issue Credit Ratings
A-1: A short-term obligation rated A-1 is rated in the highest category by S&P. The obligor’s capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
B: A short-term obligation rated B is regarded as having significant speculative characteristics. Ratings of B-1, B-2, and B-3 may be assigned to indicate finer distinctions within the B category. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing uncertainties which could lead to the obligor’s inadequate capacity to meet its financial commitments.
C: A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category is used when payments on an obligation are not made on the date due, unless S&P believes that such payments will be made within any stated grace period. However, any stated grace period longer than five business days will be treated as five business days. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. An obligation’s rating is lowered to D if it is subject to a distressed exchange offer.
Qualifiers (Active)
S&P uses the following (active) qualifiers that limit the scope of a rating. The structure of the transaction can require the use of a qualifier such as a ‘p’ qualifier, which indicates the rating addresses the principal portion of the obligation only. A qualifier appears as a suffix and is part of the rating.
L: Ratings qualified with “L” apply only to amounts invested up to federal deposit insurance limits.
p: This subscript is used for issues in which the credit factors, the terms, or both, that determine the likelihood of receipt of payment of principal are different from the credit factors, terms or both that determine the likelihood of receipt of interest on the obligation. The “p” subscript indicates that the rating addresses the principal portion of the obligation only. The “p” subscript will always be used in conjunction with the “i” subscript, which addresses likelihood of receipt of interest. For example, a rated obligation could be assigned ratings of “AAAp NRi” indicating that the principal portion is rated AAA and the interest portion of the obligation is not rated.
25
prelim: Preliminary ratings, with the “prelim” qualifier, may be assigned to obligors or obligations, including financial programs, in the circumstances described below. Assignment of a final rating is conditional on the receipt by S&P of appropriate documentation. S&P reserves the right not to issue a final rating. Moreover, if a final rating is issued, it may differ from the preliminary rating.
• | Preliminary ratings may be assigned to obligations, most commonly structured and project finance issues, pending receipt of final documentation and legal opinions. |
• | Preliminary ratings may be assigned to obligations that will likely be issued upon the obligor’s emergence from bankruptcy or similar reorganization, based on late-stage reorganization plans, documentation and discussions with the obligor. Preliminary ratings may also be assigned to the obligors. These ratings consider the anticipated general credit quality of the reorganized or post-bankruptcy issuer as well as attributes of the anticipated obligation(s). |
• | Preliminary ratings may be assigned to entities that are being formed or that are in the process of being independently established when, in Standard & Poor’s opinion, documentation is close to final. Preliminary ratings may also be assigned to these entities’ obligations. |
• | Preliminary ratings may be assigned when a previously unrated entity is undergoing a well-formulated restructuring, recapitalization, significant financing or other transformative event, generally at the point that investor or lender commitments are invited. The preliminary rating may be assigned to the entity and to its proposed obligation(s). These preliminary ratings consider the anticipated general credit quality of the obligor, as well as attributes of the anticipated obligation(s), assuming successful completion of the transformative event. Should the transformative event not occur, Standard & Poor’s would likely withdraw these preliminary ratings. |
• | A preliminary recovery rating may be assigned to an obligation that has a preliminary issue credit rating. |
t: This symbol indicates termination structures that are designed to honor their contracts to full maturity or, should certain events occur, to terminate and cash settle all their contracts before their final maturity date.
CIR: This symbol indicates a counterparty instrument rating (CIR), which is a forward-looking opinion about the creditworthiness of an issuer in a securitization structure with respect to a specific financial obligation to a counterparty (including interest rate swaps, currency swaps, and liquidity facilities). The CIR is determined on an ultimate payment basis; these opinions do not take into account timeliness of payment.
26
FITCH RATINGS, INC.
Corporate Finance Obligations—Long-Term Rating Scales. Fitch states that ratings of individual securities or financial obligations of a corporate issuer address relative vulnerability to default on an ordinal scale. In addition, for financial obligations in corporate finance, a measure of recovery given default on that liability also is included in the rating assessment. This notably applies to covered bond ratings, which incorporate both an indication of the probability of default and of the recovery given a default of this debt instrument.
Fitch states that the relationship between issuer scale and obligation scale assumes a generic historical average recovery. As a result, individual obligations of entities, such as corporations, are assigned ratings higher, lower or the same as that entity’s issuer rating.
Highest credit quality: “AAA” ratings denote the lowest expectation of credit risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
Very high credit quality: “AA” ratings denote expectations of very low credit risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
High credit quality: “A” ratings denote expectations of low credit risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
Good credit quality: “BBB” ratings indicate that expectations of credit risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.
Speculative: “BB” ratings indicate an elevated vulnerability to credit risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial alternatives may be available to allow financial commitments to be met.
Highly speculative: “B” ratings indicate that material credit risk is present.
Substantial credit risk: “CCC” ratings indicate that substantial credit risk is present.
Very high levels of credit risk: “CC” ratings indicate very high levels of credit risk.
Exceptionally high levels of credit risk: “C” indicates exceptionally high levels of credit risk.
Defaulted obligations typically are not assigned “RD” or “D” ratings (see “Short-Term Ratings Assigned to Obligations in Corporate, Public and Structured Finance” below), but are instead rated in the “B” to “C” rating categories, depending on their recovery prospects and other relevant characteristics. This approach better aligns obligations that have comparable overall expected loss but varying vulnerability to default and loss.
Note: The modifiers “+” or “-” may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the “AAA” obligation rating category, or to corporate finance obligation ratings in the categories below “CCC.”
Structured, Project & Public Finance Obligations—Long-Term Rating Scales. Fitch states that ratings of structured finance obligations on the long-term scale consider the obligations’ relative vulnerability to default. These ratings are typically assigned to an individual security or tranche in a transaction and not to an issuer.
Highest credit quality: “AAA” ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
Very high credit quality: “AA” ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
27
High credit quality: “A” ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
Good credit quality: “BBB” ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.
Speculative: “BB” ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time.
Highly speculative: “B” ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.
Substantial credit risk: “CCC” indicates that default is a real possibility.
Very high levels of credit risk: “CC” indicates that default of some kind appears probable.
Exceptionally high levels of credit risk: “C” indicates that default appears imminent or inevitable.
Default: “D” indicates a default. Default generally is defined as one of the following: failure to make payment of principal and/or interest under the contractual terms of the rated obligation; the bankruptcy filings, administration, receivership, liquidation or other winding-up or cessation of the business of an issuer/obligor; or the distressed exchange of an obligation, where creditors were offered securities with diminished structural or economic terms compared with the existing obligation to avoid a probable payment default.
Short-Term Ratings Assigned to Issuers and Obligations. Fitch states that its short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity and relates to the capacity to meet financial obligations in accordance with the documentation governing the relevant obligation. Fitch short-term ratings are assigned to obligations whose initial maturity is viewed as “short-term” based on market convention. Typically, this means up to 13 months for corporate, sovereign and structured obligations, and up to 36 months for obligations in U.S. public finance markets.
Highest short-term credit quality: “F1” indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added “+” to denote any exceptionally strong credit feature.
Good short-term credit quality: “F2” indicates good intrinsic capacity for timely payment of financial commitments.
Fair short-term credit quality: “F3” indicates that the intrinsic capacity for timely payment of financial commitments is adequate.
Speculative short-term credit quality: “B” indicates minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic conditions.
High short-term default risk: “C” indicates that default is a real possibility.
Restricted default: “RD” indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Typically applicable to entity ratings only.
Default: “D” indicates a broad-based default event for an entity, or the default of a specific short-term obligation.
* * *
The ratings indicated herein are believed to be the most recent ratings available at the date of this Statement of Additional Information for the securities listed. Ratings are generally given to securities at the time of issuance. While the rating agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings indicated do not necessarily represent ratings which would be given to these securities on the date of the Fund’s fiscal year end.
28
PART C: OTHER INFORMATION
Item 25. | Financial Statements and Exhibits |
1. | Financial Statements |
In Part A:
Financial Highlights for fiscal years ended December 31, 2012; for the fiscal period ended October 31, 2013; for fiscal years ended October 31, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021 and 2022.
In Part B:
Incorporated into Part B by reference to Registrant’s most recent Certified Shareholder Report on Form N-CSR, filed January 6, 2023, as amended on February 28, 2023 (File No. 811-04915):
Report of independent registered public accounting firm
Schedule of Investments at October 31, 2022
Statement of Assets and Liabilities at October 31, 2022
Statement of Operations for the fiscal year ended October 31, 2022
Statement of Changes in Net Assets for the fiscal years ended October 31, 2022 and 2021
Statement of Cash Flows for the fiscal year ended October 31, 2022
Financial Highlights — Selected Per Share Data and Ratios
Notes to Financial Statements
2. | Exhibits |
a. |
b. |
c. | None |
d.1 | Specimen common stock certificate (Incorporated by reference from Registrant’s registration statement on Form N-2, no. 33-10421) |
d.2 |
d.3 |
d.4 |
e. |
f. | None |
g.1 |
h | Equity Distribution Agreement** |
i. | Not applicable |
j.1 |
j.2 |
k.1 |
k.2 |
k.3 |
k.4 |
k.5 |
k.6 |
k.7 |
k.8 |
k.9 |
k.10 |
k.11 |
k.12 |
k.13 |
k.14 |
k.15 |
k.16 |
k.17 |
k.18 | Thirteenth Amendment Agreement, dated as of March 30, 2021, to the Committed Facility Agreement* |
k.19 | Fourteenth Amendment Agreement, dated as of December 1, 2022, to the Committed Facility Agreement* |
l. |
m. | Not applicable |
n. |
o. | Not applicable |
p. | Subscription Agreement for initial capital (Incorporated by reference from Registrant’s registration statement on Form N-2, no. 33-10421) |
q. | Not applicable |
r.1 |
r.2 |
s. |
t.1 |
t.2 |
Item 26. | Marketing Arrangements |
Not applicable.
* | Filed herewith |
** | To be filed by amendment |
Item 27. | Other Expenses of Issuance and Distribution |
The following table sets forth the estimated expenses to be incurred in connection with the offering described in this registration statement:
Securities and Exchange Commission registration fee |
$ | 140 | ||
Printing and postage |
$ | 15,000 | ||
Accounting fees and expenses |
$ | 25,000 | ||
Legal fees and expenses |
$ | 75,000 | ||
Financial Industry Regulatory Authority fees |
$ | — | ||
Dealer sales load |
$ | 1,585,543 | ||
Reimbursement of Dealer expenses |
$ | — | ||
|
|
|||
Total |
$ | 1,700,683 |
Item 28. | Persons Controlled by or Under Common Control |
Not applicable.
Item 29. | Number of Holders of Each Class of Securities of the Registrant |
Title of Class1 |
Number of Record Holders January 31, 2023 |
|||
Common Stock |
9,603 | |||
Preferred Stock |
12 | |||
Senior Notes |
41 |
Note: the Registrant also has a credit facility with a commercial bank, as described in the prospectus.
Item 30. | Indemnification |
Maryland law permits a corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages, except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment and which is material to the cause of action. The Registrant’s charter contains a provision which eliminates directors’ and officers’ liability to the maximum extent permitted by Maryland law.
Maryland law requires a corporation (unless its charter provides otherwise, which the Registrant’s charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which he is made a party by reason of his service in that capacity. Maryland law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding unless it is established that:
• | the act or omission was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, or |
• | the director or officer actually received an improper personal benefit in money, property or services or in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. |
A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the prescribed standard of conduct is not met. However, indemnification for an adverse judgment in a suit by or in the right of the corporation, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses.
In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer upon receipt of (a) a written affirmation by the director or officer of his good faith belief that he has met the standard of conduct necessary for indemnification and (b) a written undertaking by him or on his behalf to repay the amount paid or reimbursed if it is ultimately determined that the standard of conduct was not met.
The Registrant’s charter obligates it, to the maximum extent permitted by Maryland law but subject to the exclusion required by Section 17(h) of the 1940 Act, to indemnify (a) any present or former director or officer or (b) any director or officer who, at the Registrant’s request, serves another enterprise as a director or officer. The Bylaws of the Registrant obligate it to provide advance of expenses to the fullest extent permitted by Maryland law, except as limited by the 1940 Act. Additionally, the Registrant’s Bylaws permit it to indemnify any other employees or agents of the Registrant to the extent authorized by the Registrant’s Board of Directors.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”) may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person in connection with the securities being registered), the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The Registrant, its directors and officers, the Registrant’s investment adviser and persons affiliated with them are insured under policies of insurance maintained by the Registrant and the investment adviser, within the limits and subject to the limitations of the policies, against certain expenses in connection with the defense of actions, suits or proceedings and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such directors or officers. The policies expressly exclude coverage for any director or officer whose personal dishonesty, fraudulent breach of trust, lack of good faith, or intention to deceive or defraud has been finally adjudicated or may be established or who willfully fails to act prudently.
Item 31. | Business and Other Connections of Investment Adviser |
Neither the Fund’s investment adviser, nor any of its directors or executive officers, has at any time during the past two years been engaged in any other business, profession, vocation or employment of a substantial nature either for its or his own account or in the capacity of director, officer, employee, partner or trustee, except as indicated in this Registration Statement.
Item 32. | Location of Accounts and Records |
All accounts, books and other documents required to be maintained by Section 31 (a) of the 1940 Act and the Rules promulgated thereunder are maintained at the offices of the Fund (200 South Wacker Drive, Suite 500, Chicago, Illinois 60606), the Fund’s investment adviser, administrator, custodian and transfer agent, and the Fund’s legal counsel, Mayer Brown LLP (71 South Wacker Drive, Chicago, Illinois 60606). See Parts A and B of this Registration Statement for the addresses of the Fund’s investment adviser, administrator, custodian and transfer agent.
Item 33. | Management Services |
Not applicable.
Item 34. | Undertakings |
(1) Not applicable.
(2) Not applicable.
(3) Registrant undertakes:
(a) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(1) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);
(2) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and
(3) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(b) that, for the purpose of determining liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof; and
(c) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;
(d) that, for the purpose of determining liability under the Securities Act to any purchaser:
(1) if the Registrant is subject to Rule 430B:
(A) Each prospectus filed by the Registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (x), or (xi) under the Securities Act for the purpose of providing the information required by Section 10 (a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or
(2) if the Registrant is subject to Rule 430C: each prospectus filed pursuant to Rule 424(b) under the Securities Act as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(e) that for the purpose of determining liability of the Registrant under the Securities Act to any purchaser in the initial distribution of securities:
The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser:
(1) | any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424 under the Securities Act; |
(2) | free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant; |
(3) | the portion of any other free writing prospectus or advertisement pursuant to Rule 482 under the Securities Act relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and |
(4) | any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser. |
(4) Registrant undertakes that:
(a) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of the Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 497(h) under the Securities Act, shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities 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.
(5) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference into the registration statement 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) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 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 the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the 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 Act and will be governed by the final adjudication of such issue.
(7) Registrant 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 prospectus or Statement of Additional Information.
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, as amended (the “Securities Act”) and the Investment Company Act of 1940, as amended, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, and State of Illinois, on the 3rd day of March, 2023.
DNP SELECT INCOME FUND INC. | ||
By: | /s/ David D. Grumhaus, Jr. | |
Name: | David D. Grumhaus, Jr. | |
Title: | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the date indicated.
Signature |
Title |
Date | ||
* David J. Vitale |
Chairman and Director | March 3, 2023 | ||
* Donald C. Burke |
Director | March 3, 2023 | ||
* Philip R. McLoughlin |
Director | March 3, 2023 | ||
* Geraldine M. McNamara |
Director | March 3, 2023 | ||
* Eileen A. Moran |
Vice Chairperson and Director | March 3, 2023 | ||
/s/ Alan M. Meder Alan M. Meder |
Treasurer, Principal Financial and Accounting Officer, and Assistant Secretary (Principal Financial Officer) | March 3, 2023 |
*This filing has been signed by each of the persons so indicated by the undersigned Attorney-in-Fact pursuant to powers of attorney filed herewith or heretofore.
*By: | /s/ Alan M. Meder | |
Alan M. Meder | ||
Attorney-in-Fact |
EXHIBIT INDEX
DNP SELECT INCOME FUND INC.
ARTICLES OF RESTATEMENT
DNP SELECT INCOME FUND INC., a Maryland corporation, having its principal office in Baltimore City, Maryland (which is hereinafter called the Corporation), desires to restate its charter as currently in effect, and hereby certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The following provisions are all of the provisions of the charter of the Corporation as currently in effect:
FIRST. Name. The name of the corporation (the Corporation) is DNP Select Income Fund Inc.
SECOND. Purposes. The purposes for which the Corporation is formed are:
1. To engage in the business of a closed-end management investment company.
2. To invest and reinvest in, to buy or otherwise acquire, to hold for investment or otherwise, and to sell or otherwise dispose of:
a. Securities of all kinds, however evidenced, and rights or warrants to acquire securities, of private and public companies, corporations, associations, trusts and other enterprises and organizations;
b. Obligations issued or guaranteed by national and state governments and their instrumentalities and subdivisions;
c. Deposits in banks, savings banks, trust companies and savings and loan associations;
d. Assets and interests other than securities or deposits.
3. To engage in any other lawful act or activity for which corporations may be organized under the general laws of the State of Maryland as now or hereafter in force.
THIRD. Principal office and resident agent. The post office address of the principal office of the Corporation in the State of Maryland is c/o The Corporation Trust Incorporated, 2405 York Road, Suite 201, Lutherville Timonium, Maryland 21093. The name and post office address of the resident agent of the Corporation in the State of Maryland is The Corporation Trust Incorporated, 2405 York Road, Suite 201, Lutherville Timonium, Maryland 21093. The resident agent is a Maryland corporation.
FOURTH. Capital Stock.
The total number of shares of all classes of stock which the Corporation shall have authority to issue is 550,000,000 shares with an aggregate par value of $550,000, divided into two classes, 450,000,000 shares of common stock, $.001 par value per share (common stock), and 100,000,000 shares of preferred stock, $.001 par value per share (preferred stock), further classified and designated as follows: (a) 750 Floating Rate Mandatory Redeemable Preferred Shares, Series C, and (b) 1,320 Fixed Rate Mandatory Redeemable Preferred Shares, Series E (with Floating Rate Mandatory Redeemable Preferred Shares, Series C, Fixed Rate Mandatory Redeemable Preferred Shares, Series E, and any other series of Floating Rate Mandatory Redeemable Preferred Shares or Fixed Rate Mandatory Redeemable Preferred Shares that may be classified and designated in the future collectively referred to herein as the MRP Shares). The preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, of the common stock and the preferred stock are as follows:
A. Common stock
1. Dividends. Subject to law and to the preferences of the preferred stock, the holders of the common stock shall be entitled to receive dividends at such time and in such amounts as may be determined by the board of directors.
2. Voting. Except as provided by law and in or pursuant to this Article Fourth, the holders of the common stock shall have one vote for each share on each matter submitted to a vote of the stockholders of the Corporation.
3. Liquidation. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Corporation and the preferential amounts to which the holders of the preferred stock shall be entitled upon liquidation, the holders of the common stock shall be entitled to share in the remaining assets of the Corporation according to their respective interests.
B. Preferred stock
1. Authority of the board of directors to issue in series. The preferred stock may be issued from time to time in one or more series. All shares of any one series of preferred stock shall be identical except as to the respective dates of their issue, the dates from which dividends on shares of the series issued on different dates shall cumulate, dividend rates, dividend periods and dividend payment dates. Subject to the charter, authority is expressly granted to the board of directors to authorize the issue of one or more series of preferred stock, and to fix by resolution or resolutions providing for the issue of each such series the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemptions, of such series, to the full extent now or hereafter permitted by law, including but not limited to the following:
a. The number of shares of such series, which may subsequently be increased (except as otherwise provided by the resolution or resolutions of the board of directors providing for the issue of such series) or decreased (to a number not less than the number of shares then outstanding) by resolution or resolutions of the board of directors, and the distinctive designation of the series;
-2-
b. The rates or amounts, the periods, and the times of payment, of dividends on shares of such series;
c. The voting powers, if any, of the holders of such series in addition to the voting powers provided by law and in this Article Fourth;
d. The terms and conditions, if any, upon which the shares of such series shall be convertible into or exchangeable for shares of any other series, class or classes, or any other securities, to the full extent now or hereafter permitted by law;
e. The time or times during which, the price or prices at which, and the terms and conditions on which, the shares of such series may be redeemed by the Corporation;
f. The terms of any sinking fund to be applied to the purchase or redemption, or both, of shares of such series, and the terms and amount of any sinking fund payments and the manner of their application; and
g. The amount which the holders of each series shall be entitled to receive in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation.
Except as stated above in this part 1, all shares of preferred stock shall be identical. All shares of preferred stock, regardless of series, shall be of equal rank, and there shall be no priority of one series over any other series in any payment of dividends nor upon any distribution of assets.
2. Dividends. The holders of preferred stock of each series shall be entitled to receive, when and as declared by the board of directors, cumulative cash dividends at the rates or amounts, for the periods, and at the times, determined as, or in the manner, specified for such series by the board of directors as authorized in the preceding part 1.
No dividends shall be paid or declared or set apart for payment on any share of preferred stock of any series for any dividend period unless at or prior to such time all dividends accumulated on all shares of preferred stock then outstanding shall have been declared through the most recently ended dividend period of the respective shares, and terminating on the same and any earlier date shall have been paid or declared and set apart for payment.
-3-
3. Voting. At any meeting of stockholders of the Corporation at which directors are to be elected, the holders of preferred stock of all series, voting separately as a single class, shall be entitled to elect two members of the board of directors, and the holders of common stock, voting separately as a single class, shall be entitled to elect the balance of the members of the board of directors.
If at any time dividends on any outstanding preferred stock of any series shall be unpaid in an amount equal to two full years dividends, the number of directors constituting the board of directors shall automatically be increased by the smallest number that, when added to the number of directors then constituting the board of directors, shall constitute a majority of such increased number, including the two directors elected by the holders of preferred stock pursuant to the preceding paragraph; and at a special meeting of stockholders which shall be called and held as soon as practicable, and at all subsequent meetings at which directors are to be elected, the holders of preferred stock of all series, voting separately as a single class, shall be entitled to elect the smallest number of additional directors of the Corporation who will constitute a majority of the total number of directors of the Corporation so increased. The terms of office of the persons who are directors at the time of that election shall continue. If the Corporation thereafter shall pay, or declare and set apart for payment, in full all dividends payable on all outstanding shares of preferred stock of all series for all past dividend periods, the voting rights stated in the preceding sentence shall cease, and the terms of office of all of the directors elected by the holders of preferred stock (but not of the directors elected by the holders of common stock) shall terminate automatically. A special meeting of stockholders shall be called and held as soon thereafter as practicable for the election of two directors by the holders of the preferred stock, as provided in the preceding paragraph; and at such meeting, and at all subsequent meetings of stockholders at which directors are to be elected, the holders of shares of preferred stock and of common stock shall have the right to elect the members of the board of directors as stated in the preceding paragraph, subject to the revesting of the rights of the holders of the preferred stock as provided in the first sentence of this paragraph in the event of any subsequent arrearage in the payment of two full years dividends on the shares of preferred stock of any series.
Any vacancy in the office of any director elected by the holders of shares of preferred stock may be filled by the remaining directors (or director) so elected or, if not so filled, by the holders of shares of preferred stock of all series, voting separately as a single class, at any meeting of stockholders for the election of directors held thereafter. A director elected by the holders of preferred stock or of common stock may be removed with or without cause, but only by action taken by the holders of at least 75% of the shares of preferred stock or of common stock, respectively, then entitled to vote in an election to fill that directorship.
Except to the extent stated otherwise in this Article Fourth, the provisions of Article Eighth shall apply to this Article Fourth.
4. Liquidation. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of preferred stock of each series shall be entitled to receive only such amount or amounts, including accumulated and unpaid dividends, as shall have been fixed by the charter or by the resolution or
-4-
resolutions of the board of directors providing for the issue of such series. If, upon any such liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets of the Corporation available for distribution among the holders of all outstanding shares of preferred stock of all series should be insufficient to permit the payment in full to such holders of the amounts to which they are entitled, then such available assets shall be distributed among the holders of shares of preferred stock ratably in any such distribution of assets according to the respective amounts that would be payable on all such shares if all amounts thereon were paid in full. A consolidation or merger of the Corporation with or into one or more other corporations or a sale, lease or exchange of all or substantially all of the assets of the Corporation shall not be deemed to be a voluntary or involuntary liquidation, dissolution or winding up, within the meaning of this Article Fourth.
C. All stock
1. Sale of shares. The board of directors may authorize the sale and issuance from time to time of shares of stock, whether now or hereafter authorized, for such consideration as the board of directors considers advisable, but not less than par value, subject to such limitations as may be set forth in the charter of the Corporation, the bylaws, the General Laws of the State of Maryland, the Investment Company Act of 1940, and other applicable laws.
2. Fractional shares. Except as may be provided otherwise by the board of directors in authorizing the issuance of a series of preferred stock, stock may be issued in fractions of whole shares, to which attach pro rata all of the rights of whole shares, including the right of voting and of receipt of dividends, except that there shall be no right of receipt of a certificate representing any fraction of a whole share.
3. No preemptive rights. No holder of shares of the Corporation, whether now or hereafter authorized, shall be entitled as of right to acquire from the Corporation any shares of the Corporation, whether now or hereafter authorized.
-5-
FIFTH. Series C of Floating Rate Mandatory Redeemable Preferred Shares. The number of shares, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, of the Floating Rate Mandatory Redeemable Preferred Shares, Series C are as set forth in this Article Fifth:
DESIGNATION
FLOATING RATE MANDATORY REDEEMABLE PREFERRED SHARES, SERIES C: A series of 750 shares of Preferred Stock, par value $.001 per share, liquidation preference $100,000 per share plus accumulated but unpaid dividends, if any, thereon (whether or not earned or declared), is hereby designated Floating Rate Mandatory Redeemable Preferred Shares, Series C (the Series C MRP Shares). Each Series C MRP Share shall be issued on the Original Issue Date. The initial Dividend Period for the Series C MRP Shares shall be the period from and including the Original Issue Date to and including March 31, 2014. Each Series C MRP Share shall have a dividend rate equal to the Series C Applicable Rate from time to time, and shall have such other preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption, in addition to those required by applicable law or set forth in the Charter applicable to Preferred Stock of the Corporation, as are set forth in this Article Fifth. The Series C MRP Shares shall constitute a separate series of Preferred Stock of the Corporation, and each Series C MRP Share shall be identical.
The Board of Directors of the Corporation may, in the future, by resolution duly adopted, without stockholder approval (except as otherwise provided by this Article Fifth or required by applicable law), classify additional shares out of the Corporations authorized and unissued Preferred Stock as one or more additional series of MRP Shares, with the same preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption and other terms herein described, except that the Original Issue Date, initial Dividend Period and Applicable Rate pertaining to the MRP Shares of each such additional series, and any other changes in the terms herein set forth, shall be as set forth in the Articles Supplementary with respect to such additional series.
As used herein, capitalized terms not otherwise defined herein shall have the meanings provided in Section 12 hereof.
SECTION 1. RANKING.
(a) The MRP Shares shall rank on a parity with shares of any other series of Preferred Stock as to the payment of dividends to which the shares are entitled and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Corporation.
(b) No Holder of MRP Shares shall have, solely by reason of being a Holder, any preemptive right, or, unless otherwise determined by the Board of Directors, other right to acquire, purchase or subscribe for any Preferred Stock, Common Stock or other securities of the Corporation which it may hereafter issue or sell.
-6-
SECTION 2. DIVIDENDS.
(a) The Holders of MRP Shares shall be entitled to receive quarterly cumulative cash dividends, when, as and if authorized by the Board of Directors and declared by the Corporation, out of funds legally available therefor, at the rate per annum equal to the Dividend Rate, and no more, payable on the respective dates determined as set forth in paragraph (b) of this Section 2. Dividends on Outstanding MRP Shares shall accumulate from the Original Issue Date.
(b) (i) Dividends on MRP Shares shall be payable quarterly when, as and if authorized by the Board of Directors and declared by the Corporation beginning on the initial Dividend Payment Date with respect to the initial Dividend Period, and on the applicable Dividend Payment Date with respect to each subsequent Dividend Period.
(ii) Except as otherwise set forth herein, the Corporation shall deposit irrevocably in trust with the Paying Agent not later than 3:00 p.m., New York City time, on the Business Day next preceding each Dividend Payment Date an amount of same-day funds equal to the aggregate amount of dividends to be paid to all Holders of MRP Shares on such Dividend Payment Date and the Holders shall have received such funds on such Dividend Payment Date. The Corporation shall not be required to establish any reserves for the payment of dividends.
(iii) Each dividend on MRP Shares shall be paid on the Dividend Payment Date therefor to the Holders thereof as their names appear in the record books of the Corporation at the close of business on the fifth (5th) day prior to such Dividend Payment Date (or if such day is not a Business Day, the next preceding Business Day). 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 share ledger or share records of the Corporation at the close of business on a date, not exceeding five (5) calendar days preceding the payment date thereof, as may be fixed by the Board of Directors. No interest will be payable in respect of any dividend payment or payments which may be in arrears.
(c) (i) Subject to the provisions of Sections 2(c)(ii) and 2(c)(iii) below, the dividend rate applicable to a series of MRP Shares (the Dividend Rate) with respect to each Dividend Payment Date shall be determined as follows:
(A) If on the first day of the Dividend Period immediately preceding such Dividend Payment Date the MRP Shares of such series are rated no lower than A by Fitch (and no lower than the equivalent of such rating by any Other Rating Agency), the Dividend Rate for such series of MRP Shares shall be the Applicable Rate.
(B) If on the first day of the Dividend Period immediately preceding such Dividend Payment Date the MRP Shares of such series are rated lower than A by Fitch (or lower than the equivalent of such rating by any Other Rating Agency), the Dividend Rate for such series of MRP Shares shall be the Applicable Rate plus the enhanced dividend amount (which shall not be cumulative) set forth opposite the lowest of such ratings in the table below.
FITCH RATING |
ENHANCED DIVIDEND AMOUNT | |
A- |
0.5% | |
BBB+ to BBB- |
2.0% | |
BB+ or below |
4.0% |
-7-
(C) The Corporation shall, at all times, use its reasonable best efforts to cause at least one NRSRO to maintain a current long-term credit rating on each series of the MRP Shares for so long as such series is Outstanding. If, notwithstanding the foregoing, no Rating Agency is rating a series of MRP Shares, the Dividend Rate (so long as no such rating exists) for such series of MRP Shares shall be equal to the Applicable Rate plus 4.0% unless the Dividend Rate is the Default Rate, in which case the Dividend Rate shall remain the Default Rate.
(ii) Subject to the cure provisions of Section 2(c)(iii) below, a Default Period will commence on any Dividend Payment Date or any Redemption Date if the Corporation fails to deposit irrevocably in trust with the Paying Agent not later than 3:00 p.m., New York City time, an amount of same-day funds equal to (A) the full amount of any dividend payable on such Dividend Payment Date (a Dividend Default) or (B) the full amount of any redemption price payable on such Redemption Date (a Redemption Default) and the Holders have not received such funds on the same Business Day. Subject to the cure provisions of Section 2(c)(iii) below, a Default Period with respect to a Dividend Default or a Redemption Default shall end on the Business Day on which, by 12:00 noon, New York City time, all unpaid dividends and any unpaid redemption price shall have been deposited irrevocably in trust, in same-day funds, with the Paying Agent (and the Holders have received such funds on the same Business Day). In the case of a Dividend Default or a Redemption Default, the Dividend Rate for each day during the Default Period shall be equal to the Default Rate.
(iii) No Default Period with respect to a Dividend Default or Redemption Default (if such default is not solely due to the willful failure of the Corporation) shall be deemed to have commenced if the amount of any dividend or any redemption price due is deposited irrevocably in trust, in same-day funds, with the Paying Agent (and the Holders have received such funds on the same Business Day) within three (3) Business Days (the Default Rate Cure Period) after the applicable Dividend Payment Date or Redemption Date, together with an amount equal to the Default Rate applied to the amount of such non-payment based on the actual number of days within the Default Rate Cure Period divided by 360.
(iv) The amount of dividends per share payable on each Dividend Payment Date shall be computed by multiplying the Dividend Rate for the immediately preceding Dividend Period by a fraction, the numerator of which shall be 90 and the denominator of which shall be 360, multiplying the amount so obtained by the MRP Liquidation Preference Amount, and rounding the amount so obtained to the nearest cent. Dividends payable on any MRP Shares for any period of less than a full quarterly Dividend Period including in connection with the first Dividend Period or upon any redemption of such shares on any date other than on a Dividend Payment Date, shall be computed by multiplying the Dividend Rate for such period by a fraction, the numerator of which shall be the actual number of days in such period and the denominator of which shall be 360, multiplying the amount so obtained by the MRP Liquidation Preference Amount, and rounding the amount so obtained to the nearest cent.
-8-
(d) Any dividend payment made on MRP Shares shall first be credited against the earliest accumulated but unpaid dividends due with respect to such MRP Shares.
(e) For so long as any MRP Shares are Outstanding, except as contemplated herein, the Corporation will not declare, pay or set apart for payment any dividend or other distribution (other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase, Common Shares or other shares of capital stock, if any, ranking junior to the MRP Shares as to dividends or upon liquidation) with respect to Common Shares or any other shares of the Corporation ranking junior to or on a parity with the MRP Shares as to dividends or upon liquidation, 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 Corporation ranking junior to the MRP Shares as to dividends and upon liquidation) or any such parity shares (except by conversion into or exchange for shares of the Corporation ranking junior to or on a parity with the MRP Shares as to dividends and upon liquidation), unless (1) immediately after such transaction the Corporation would satisfy the MRP Shares Asset Coverage Test and the MRP Shares Overcollateralization Test, (2) full cumulative dividends on the MRP Shares due on or prior to the date of the transaction have been declared and paid to the Holders of MRP Shares, and (3) the Corporation has redeemed the full number of MRP Shares required to be redeemed by any provision for mandatory redemption contained in Section 3(a) (without regard to the provisions of the Special Proviso).
SECTION 3. REDEMPTION.
(a) (i) The Corporation may, at its option, redeem in whole or in part out of funds legally available therefor, MRP Shares at any time and from time to time, upon not less than 30 calendar days nor more than 35 calendar days notice as provided in Section 3(c), at a redemption price per share equal to the sum of (A) the MRP Liquidation Preference Amount plus accumulated but unpaid dividends and distributions on each MRP Share to be redeemed (whether or not earned or declared by the Corporation, but excluding interest thereon), to, but excluding, the date fixed for redemption, plus (B) the Early Redemption Amount then applicable, if any.
(ii) If the Corporation fails to satisfy (1) the MRP Shares Asset Coverage Test as of the last day of any month or (2) the MRP Shares Overcollateralization Test as of any Valuation Date, and any such failure is not cured as of the close of business on the applicable Cure Date, the Corporation shall, subject to Section 3(a)(iii), redeem MRP Shares at a redemption price per share equal to the sum of (A) the MRP Liquidation Preference Amount plus accumulated but unpaid dividends and distributions on each MRP Share to be redeemed (whether or not earned or declared by the Corporation, but excluding interest thereon) to, but excluding, the date fixed for redemption, plus (B) an additional amount equal to the lesser of (1) 1% of the MRP Liquidation Preference Amount or (2) the Early Redemption Amount then applicable, if any. The number of MRP Shares to be redeemed in such circumstances will be equal to the product of (I) the quotient of the number of Outstanding MRP Shares divided by the aggregate number of outstanding
-9-
Preferred Shares of the Corporation (including the MRP Shares) which have an asset coverage test greater than or equal to 225% multiplied by (II) the minimum number of outstanding Preferred Shares of the Corporation (including the MRP Shares) the redemption of which, if deemed to have occurred immediately prior to the opening of business on the applicable Cure Date, would result in the Corporation satisfying the MRP Shares Asset Coverage Test or the MRP Shares Overcollateralization Test, as the case may be, as of such Cure Date (provided that, if there is no such number of MRP Shares the redemption of which would have such result, the Corporation shall, subject to Section 3(a)(iii), redeem all MRP Shares then Outstanding). Notwithstanding the foregoing, if the Corporation satisfies the MRP Asset Coverage Test and the MRP Overcollateralization Test as of the applicable Cure Date before taking into account any redemptions of Preferred Shares, the Corporation shall not be obligated to redeem any Preferred Shares under this Section 3(a)(ii).
(iii) The Corporation shall effect any redemption pursuant to subparagraph (a)(ii) of this Section 3 not less than 30 calendar days and not more than 35 calendar days after the Cure Date (the Mandatory Redemption Date), provided, that if the Corporation (1) does not have funds legally available for the redemption of, or (2) is not otherwise legally permitted to redeem, the number of MRP Shares which would be required to be redeemed by the Corporation under subparagraph (a)(ii) of this Section 3 if sufficient funds were available, together with shares of other Preferred Shares which are subject to mandatory redemption under provisions similar to those contained in this Section 3(a) (the foregoing provisions of clauses (1) and (2) of this proviso being referred to as the Special Proviso), the Corporation shall redeem the MRP Shares and other Preferred Shares which it was unable to redeem on the earliest practicable date on which the Corporation has such funds available and is not otherwise prohibited from making such redemption under applicable laws (the Delayed Redemption Date), upon notice given pursuant to Section 3(c) to Holders of the MRP Shares to be redeemed and to the Paying Agent.
(iv) The Corporation shall redeem all Outstanding Series C MRP Shares on the Term Redemption Date at the MRP Liquidation Preference Amount plus accumulated but unpaid dividends and distributions thereon (whether or not earned or declared by the Corporation, but excluding interest thereon), to, but excluding, the Term Redemption Date.
(v) With respect to any redemption required under subparagraphs (ii), (iii) or (iv) of this Section 3(a), the Corporation shall deposit irrevocably in trust with the Paying Agent an amount of same-day funds sufficient to redeem the specified number of MRP Shares, not later than 3:00 p.m., New York City time, on the Business Day next preceding the Mandatory Redemption Date, the Delayed Redemption Date or the Term Redemption Date, as the case may be, and the Holders shall have received such Funds on the Mandatory Redemption Date, the Delayed Redemption Date or the Term Redemption Date, as the case may be.
(b) If fewer than all of the Outstanding shares of a series of MRP Shares are to be redeemed pursuant to any provision of Section 3(a), the Corporation shall allocate the number of shares to be redeemed pro rata among all Holders of MRP Shares of such series in proportion to the number of MRP Shares of such series held by such Holders.
-10-
(c) In the event of any redemption pursuant to Section 3(a), the Corporation will file a notice of its intention to redeem with the Commission under Rule 23c-2 under the 1940 Act or any successor provision to the extent applicable. In addition, the Corporation shall deliver a notice of redemption (the Notice of Redemption) containing the information set forth below to the Holders of MRP Shares to be redeemed not less than 30 calendar days and not more than 35 calendar days prior to the applicable redemption date. The Notice of Redemption shall be addressed to the Paying Agent and to the Holders of MRP Shares at their addresses appearing in the record books of the Corporation. Such Notice of Redemption shall set forth (1) the date fixed for redemption, (2) the number and identity of MRP Shares to be redeemed, (3) the redemption price (specifying the amount of accumulated dividends to be included therein and the amount of the redemption premium, if any), (4) that dividends on the shares to be redeemed will cease to accumulate on such date fixed for redemption, and (5) the provision of this Article Fifth under which redemption shall be made. No defect in the Notice of Redemption or in the transmittal or mailing thereof will affect the validity of the redemption proceedings, except as required by applicable law.
(d) Notwithstanding the provisions of Section 3(a), but subject to Section 5(b), no MRP Shares may be redeemed unless all dividends in arrears on the Outstanding MRP Shares and all shares of capital stock of the Corporation ranking on a parity with the MRP Shares with respect to payment of dividends or upon liquidation have been or are being contemporaneously paid or set aside for payment; provided, however, that the foregoing shall not prevent the purchase or acquisition of all Outstanding MRP Shares 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 MRP Shares.
(e) Provided that Notice of Redemption has been given to the Paying Agent and the Holders of the MRP Shares in accordance with Section 3(c), upon the deposit irrevocably in trust with the Paying Agent (and the receipt of such funds by the Holders), on or prior to the date fixed for redemption, of same-day funds in an amount sufficient to redeem the number of MRP Shares to be redeemed, dividends on such shares shall cease to accumulate and such shares shall no longer be deemed to be Outstanding for any purpose (including, without limitation, for purposes of calculating whether the Corporation has satisfied the MRP Shares Asset Coverage Test or the MRP Shares Overcollateralization Test), 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 specified herein, but without any interest or other additional amount. Such redemption price shall be paid by the Paying Agent to the Holders and, upon written request, the Corporation shall be entitled to receive from the Paying Agent, promptly after the date fixed for redemption (and after the Holders have received all amounts to which such Holders are entitled), any cash deposited with the Paying Agent in excess of (1) the aggregate redemption price of the MRP Shares called for redemption on such date and (2) such other amounts, if any, to which Holders of MRP Shares called for redemption may be entitled. Any funds so deposited that are unclaimed at the end of two years from such redemption date shall, to the extent permitted by law, be paid to the Corporation upon its written request, after which time the Holders so called for redemption may look only to the Corporation for payment of the redemption price and all other amounts, if any, to which they may be entitled.
-11-
(f) To the extent that any redemption for which a Notice of Redemption has been given is not made by reason of the Special Proviso, such redemption shall be made as soon as practicable to the extent such funds become legally available or such redemption is no longer otherwise prohibited. Failure to redeem MRP Shares shall be deemed to exist when the Corporation shall have failed, for any reason whatsoever, to pay the holders of MRP Shares the redemption price with respect to any shares for which such Notice of Redemption has been given in accordance with Sections 3 hereof. Notwithstanding the fact that the Corporation may not have redeemed MRP Shares for which a Notice of Redemption has been given, dividends may be declared and paid on MRP Shares and shall include those MRP Shares (x) for which Notice of Redemption has been given but as to which the Corporation shall not have deposited irrevocably in trust with the Paying Agent same-day funds in an amount sufficient to effect such redemption and (y) for which Notice of Redemption has been given but as to which the Holders have not received an amount sufficient to effect such redemption.
(g) The Corporation is required to deposit funds with the Paying Agent in accordance with the terms of this Article Fifth for the benefit of the Holders of MRP Shares and such funds will be held in trust by the Paying Agent for the benefit of such Holders. For the avoidance of doubt, if the Corporation irrevocably deposits such funds with the Paying Agent in accordance with the terms of this Article Fifth and the Holders of MRP Shares do not receive such funds for any reason whatsoever, the Corporation agrees to pay such funds directly to the Holders of MRP Shares in a timely manner.
(h) Except for the provisions described above, nothing contained in this Article Fifth limits any right of the Corporation to purchase or otherwise acquire any MRP Shares at any price, whether higher or lower than the price that would be paid in connection with an optional or mandatory redemption, provided that, at the time of any such purchase, (1) there is no arrearage in the payment of dividends on, or the redemption price with respect to, any MRP Shares for which Notice of Redemption has been given, (2) the Corporation would satisfy the MRP Shares Asset Coverage Test and the MRP Shares Overcollateralization Test after giving effect to such purchase or acquisition and (3) any offer to purchase or otherwise acquire any MRP Shares is made by the Corporation pro rata to all Holders of MRP Shares at the time outstanding upon the same terms and conditions.
(i) In the case of any redemption pursuant to this Section 3, only whole MRP Shares shall be redeemed, and in the event that any provision of the Charter would require redemption of a fractional share, the Corporation or the Paying Agent, as applicable, shall be authorized to round up so that only whole shares are redeemed.
SECTION 4. VOTING RIGHTS.
(a) Except for matters which do not require the vote of Holders of MRP Shares under the 1940 Act and except as otherwise provided in the Charter or the Bylaws, herein or as otherwise required by applicable law, (1) each Holder of MRP Shares shall be entitled to one vote for each MRP Share held on each matter submitted to a vote of stockholders of the Corporation, and (2) the holders of outstanding Preferred Shares and Common Shares shall vote together as a single class on all matters submitted to stockholders; provided, however, that the
-12-
holders of outstanding Preferred Shares shall be entitled, as a class, to the exclusion of the holders of shares of all other classes of stock of the Corporation, to elect two directors of the Corporation at all times and, subject to paragraph (b) of this Section 4, the holders of outstanding Common Shares, voting separately as a single class, shall be entitled to elect the balance of the members of the board of directors. Subject to the foregoing rights of the Holders of the MRP Shares, the identity and class (if the Board of Directors is then classified) of the nominees for such directors may be fixed by the Board of Directors.
(b) During any period in which any one or more of the conditions described below shall exist (such period being referred to herein as a Voting Period), the number of directors constituting the Board of Directors shall automatically increase by the smallest number that, when added to the two directors elected exclusively by the holders of Preferred Shares, would constitute a majority of the Board of Directors as so increased by such smallest number; and the holders of 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 the Corporation), 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:
(i) if at the close of business on any Dividend Payment Date accumulated dividends (whether or not earned or declared) on Preferred Shares equal to at least two full years dividends shall be due and unpaid; or
(ii) if at any time holders of any Preferred Shares are entitled under the 1940 Act to elect a majority of the directors of the Corporation.
Upon the termination of a Voting Period, the voting rights described in this paragraph (b) of Section 4 shall cease, subject always, however, to the revesting of such voting rights in the holders of Preferred Shares upon the further occurrence of any of the events described in this paragraph (b) of Section 4.
(c) As soon as practicable after the accrual of any right of the holders of Preferred Shares to elect additional directors as described in paragraph (b) of this Section 4, the Corporation shall call a special meeting of such holders, and mail a notice of such special meeting to such holders, such meeting to be held not less than 10 calendar days nor more than 30 calendar days after the date of mailing of such notice. If the Corporation fails to send such notice or if a special meeting is not called at the expense of the Corporation, it may be called by any such holder on like notice. The record date for determining the holders entitled to notice of and to vote at such special meeting shall be the close of business on the fifth Business Day preceding the day on which such notice is mailed. At any such special meeting and at each meeting of holders of Preferred Shares held during a Voting Period at which directors are to be elected, such holders, voting as a separate class (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), shall be entitled to elect the number of directors prescribed in paragraph (b) of this Section 4 on a one-vote-per-share basis.
-13-
(d) The terms of office of all persons who are directors of the Corporation at the time of a special meeting of Holders of the MRP Shares and holders of other Preferred Shares to elect directors shall continue, notwithstanding the election at such meeting by the Holders of the MRP Shares and such holders of other Preferred Shares of the number of directors that they are entitled to elect, and the persons so elected by such holders, together with the two incumbent directors elected by such holders and the remaining incumbent directors, shall constitute the duly elected directors of the Corporation.
(e) Simultaneously with the termination of a Voting Period, the terms of office of the additional directors elected by the Holders of the MRP Shares and holders of other Preferred Shares pursuant to paragraph (b) of this Section 4 shall terminate, the number of directors constituting the Board of Directors shall decrease accordingly, the remaining directors shall constitute the directors of the Corporation and the voting rights of such holders to elect additional directors pursuant to paragraph (b) of this Section 4 shall cease, subject to the provisions of the last sentence of paragraph (b) of this Section 4.
(f) So long as any of the MRP Shares are Outstanding, the Corporation will not, without the affirmative vote of the holders of a majority of the outstanding Preferred Shares determined with reference to a majority of outstanding voting securities as that term is defined in Section 2(a)(42) of the 1940 Act (a 1940 Act Majority), voting as a separate class:
(i) amend, alter or repeal any of the preferences, rights or powers of such class of Preferred Shares so as to affect materially and adversely such preferences, rights or powers;
(ii) amend, alter or repeal any of the provisions of the Charter or the Bylaws if such amendment, alteration or repeal would materially and adversely affect any privilege, preference, right or power of the MRP Shares or the Holders thereof or would restrict or limit the ability of the Corporation to comply with the terms and provisions of the Securities Purchase Agreement;
(iii) create, authorize or issue shares of any class or series of capital stock, including any additional series of MRP Shares, ranking on a parity with the Preferred Shares with respect to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Corporation (Parity Shares), or any securities convertible into, or warrants, options or similar rights to purchase, acquire or receive, Parity Shares or reclassify any authorized shares of capital stock of the Corporation into Parity Shares; provided, however, that, notwithstanding the foregoing, the Board of Directors, without the vote or consent of the holders of the Preferred Shares may from time to time authorize, create and classify, and the Corporation, to the extent permitted by the 1940 Act, may from time to time issue, Parity Shares, and may authorize, reclassify and/or issue any additional MRP Shares, including shares previously purchased or redeemed by the Corporation, if, upon issuance of such Parity Shares, (A) the Corporation would satisfy the MRP Shares Asset Coverage Test and the MRP Shares Overcollateralization Test and, in all material respects, the other provisions of this Article Fifth and (B) all accrued and unpaid dividends on the MRP Shares shall have been paid in full and all redemptions required in respect of the MRP Shares (without regard to the Special Proviso) shall have been effectuated, except to the extent the proceeds of the issuance of such Preferred Shares are used to pay such dividends in full and to effect all such redemptions; provided, further, that if the holders of such Parity Shares have the benefit of any rights substantially similar to Section 2(e), Section 3(a)(ii), this Section 4(f)(iii) or Section 4(h) which are additional to or more beneficial than the rights of the Holders of MRP Shares under such sections, then this Article
-14-
Fifth shall be deemed to include such additional or more beneficial rights for the benefit of all Holders of MRP Shares. Such rights incorporated herein shall be terminated when and if terminated with respect to such Parity Shares and shall be deemed amended or modified concurrently with any amendment or modification of such Parity Shares but, in no event, shall any such termination, amendment or modification affect the remaining rights of the Holders of MRP Shares;
(iv) liquidate or dissolve the Corporation;
(v) create, authorize, issue, incur or suffer to exist any indebtedness for borrowed money or any direct or indirect guarantee of such indebtedness for borrowed money or any direct or indirect guarantee of such indebtedness, except the Corporation may borrow and issue indebtedness as may be permitted by the Corporations investment restrictions or as may be permitted by the 1940 Act; provided, however, that transfers of assets by the Corporation subject to an obligation to repurchase shall not be deemed to be indebtedness for purposes of this provision to the extent that after giving effect to any such transaction the Corporation would satisfy the MRP Shares Overcollateralization Test; or
(vi) create, authorize or issue any shares of capital stock of the Corporation which are senior to the Preferred Shares with respect to the payment of dividends, the making of redemptions, liquidation preference or the distribution of assets of the Corporation, or any securities convertible into, or warrants, options or similar rights to purchase, acquire or receive, such shares of capital stock ranking senior to the Preferred Shares or reclassify any authorized shares of capital stock of the Corporation into any shares ranking senior to the Preferred Shares.
(g) The affirmative vote of the holders of a 1940 Act Majority of the outstanding Preferred Shares, voting as a separate class, shall be required to approve any plan of reorganization (as such term is used in the 1940 Act) adversely affecting such shares or any action requiring a vote of security holders of the Corporation under Section 13(a) of the 1940 Act.
(h) The affirmative vote of the holders of a 1940 Act Majority of any series of MRP Shares, voting separately as a series, shall be required with respect to (i) any matter that materially and adversely affects the rights, preferences, or powers of such series in a manner different from that of other separate series of classes of the Corporations shares of capital stock or (ii) any matter described in Section 4(f)(vi). The vote of holders of any shares described in this Section 4(h) will in each case be in addition to a separate vote of the requisite percentage of Common Shares and/or Preferred Shares, if any, necessary to authorize the action in question.
(i) Unless otherwise required by law, Holders of MRP Shares shall not have any relative rights or preferences or other special rights other than those specifically set forth herein. The Holders of MRP Shares shall have no rights to cumulative voting. If the Corporation fails to pay any dividends on the MRP Shares, the exclusive remedy of Holders of MRP Shares shall be the right to elect directors pursuant to the provisions of this Section 4 and such other rights as are expressly provided for by the Charter or are available to stockholders under applicable law or in a proceeding in equity.
-15-
(j) Any vote, amendment, waiver, or consent granted or to be effected by any Holder of MRP Shares that has agreed to transfer such MRP Shares to the Corporation or any Affiliate of the Corporation and has agreed to provide such waiver, vote, amendment or modification as a condition to such transfer shall be void and of no effect except as to such Holder.
(k) The foregoing voting provisions shall not apply with respect to the MRP Shares if, at or prior to the time when a vote is required, such shares have been (i) redeemed or (ii) called for redemption and the Corporation shall have deposited irrevocably in trust with the Paying Agent an amount of same-day funds sufficient to effect such redemption (and the Holders shall have received such Funds).
SECTION 5. LIQUIDATION RIGHTS.
(a) Upon the dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, the Holders of MRP Shares then Outstanding, together with holders of shares of any outstanding Preferred Shares ranking on a parity with the MRP Shares upon dissolution, liquidation or winding up, shall be entitled to receive and to be paid out of the assets of the Corporation (or the proceeds thereof) available for distribution to its stockholders after satisfaction of claims of creditors of the Corporation, but before any distribution or payment shall be made in respect of the Common Shares, an amount equal to the liquidation preference with respect to such shares. The liquidation preference for MRP Shares shall be $100,000 per share, plus an amount equal to all accumulated dividends thereon (whether or not earned or declared but without interest) to the date payment of such distribution is made in full or an amount of same-day funds sufficient for the payment thereof is deposited irrevocably in trust with the Paying Agent. No redemption premium shall be paid upon any liquidation even if such redemption premium would be paid upon optional or mandatory redemption of the relevant shares. In determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or otherwise, is permitted under the MGCL, amounts that would be needed, if the Corporation were to be dissolved at the time of distribution, to satisfy the liquidation preference of the MRP Shares will not be added to the Corporations total liabilities.
(b) If, upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the assets of the Corporation available for distribution among the holders of all outstanding Preferred Shares shall be insufficient to permit the payment in full to holders of the amounts to which they are entitled, then the available assets shall be distributed among the holders of all outstanding Preferred Shares ratably in any distribution of assets according to the respective amounts which would be payable on all the shares if all amounts thereon were paid in full.
(c) Upon the dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, until payment in full is made to the Holders of MRP Shares of the liquidation distribution to which they are entitled, (1) no dividend or other distribution shall be made to the holders of Common Shares or any other class of shares of capital stock of the Corporation ranking junior to MRP Shares upon dissolution, liquidation or winding up and (2) no purchase, redemption or other acquisition for any consideration by the Corporation shall be made in respect of the Common Shares or any other class of shares of capital stock of the Corporation ranking junior to MRP Shares upon dissolution, liquidation or winding up.
-16-
(d) A consolidation, reorganization or merger of the Corporation with or into any company, trust or other legal entity, or a sale, lease or exchange of all or substantially all of the assets of the Corporation in consideration for the issuance of equity securities of another company, trust of other legal entity shall not be deemed to be a liquidation, dissolution or winding up, whether voluntary or involuntary, for the purposes of this Section 5.
(e) After the payment to the holders of Preferred Shares of the full preferential amounts provided for in this Section 5, the holders of Preferred Shares as such shall have no right or claim to any of the remaining assets of the Corporation.
(f) Subject to the rights of the holders of shares of any series or class or classes of stock ranking on a parity with MRP Shares with respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Corporation, after payment shall have been made in full to the Holders of the MRP Shares as provided in paragraph (a) of this Section 5, but not prior thereto, any other series or class or classes of stock ranking junior to MRP Shares with respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Corporation shall, subject to any respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Holders of the MRP Shares shall not be entitled to share therein.
SECTION 6. RATING AGENCIES.
(a) If a Rating Agency shall cease to rate the securities of closed-end management investment companies generally, the Board of Directors shall terminate the designation of such Rating Agency as a Rating Agency hereunder.
(b) The Board of Directors may elect to terminate the designation of any Rating Agency as a Rating Agency hereunder with respect to a series of MRP Shares so long as either (i) immediately following such termination, there would be at least one Rating Agency providing a rating with respect to such series or (ii) it replaces the terminated Rating Agency with another NRSRO and provides notice thereof to the Holders of such series; provided, however, that such replacement shall not occur unless such replacement Other Rating Agency shall have at the time of such replacement (A) published a rating for the MRP Shares of such series and (B) entered into an agreement with the Corporation to continue to publish such rating subject to the Rating Agencys customary conditions.
(c) The Board of Directors may also elect to designate one or more other NRSROs as Other Rating Agencies hereunder with respect to a series of MRP Shares by notice to the Holders of such series of MRP Shares.
-17-
SECTION 7. RATING AGENCY GUIDELINES.
(a) For so long as any MRP Shares are outstanding and any Rating Agencies are then rating the MRP Shares, the Corporation will perform all actions required by the respective Rating Agency Guidelines and will not engage in any transactions proscribed by restrictions set forth in such Rating Agency Guidelines, unless it has received written confirmation from the applicable Rating Agency that such noncompliance would not adversely affect the rating then assigned by such Rating Agency to the MRP Shares.
(b) Without limiting the generality of Section 7(a), for so long as any MRP Shares are Outstanding and Fitch or any Other Rating Agency which so requires is then rating such shares, the Corporation shall deliver to each Rating Agency which is then rating MRP Shares and any other party specified in the respective Rating Agency Guidelines all certificates that are set forth in such Rating Agency Guidelines at such times and containing such information as set forth in such Rating Agency Guidelines.
(c) The Rating Agency Guidelines of any Rating Agency may be amended by such Rating Agency without the vote, consent or approval of the Corporation, the Board of Directors, any Holder of MRP Shares or any holder of Preferred Shares or Common Shares of the Corporation. Any such amendment shall become effective for purposes of this Article Fifth if a Rating Agency publishes notice of new guidelines or upon the delivery to the Corporation of written notice setting forth such amendment.
SECTION 8. NOTICES.
All notices and communications to Holders of MRP Shares provided for hereunder, unless otherwise specified in the Bylaws or this Article Fifth or otherwise required by applicable law, shall be in writing and sent (a) by telecopy if the Corporation on the same day sends a confirming copy of such notice by an internationally recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by an internationally recognized overnight delivery service (with charges prepaid), in each case to the respective addresses of such Holders of MRP Shares appearing in the record books of the Corporation. Notices under this Section 8 will be deemed given only when actually received.
SECTION 9. WAIVER.
To the extent permitted by Maryland law, holders of a 1940 Act Majority of the outstanding Preferred Shares, acting collectively or voting separately from any other series, may by affirmative vote waive any provision hereof intended for their respective benefit in accordance with such procedures as may from time to time be established by the Board of Directors.
-18-
SECTION 10. TERMINATION.
If no MRP Shares of a particular series are Outstanding, all rights and preferences of such shares of such series established and designated hereunder shall cease and terminate, and all obligations of the Corporation under this Article Fifth shall terminate as to such series of MRP Shares.
SECTION 11. MISCELLANEOUS.
(a) No fractional shares of MRP Shares shall be issued.
(b) MRP Shares that are redeemed, exchanged or otherwise acquired by the Corporation shall return to the status of authorized and unissued shares of Preferred Stock of the Corporation without designation as to series.
(c) To the extent permitted by applicable law, the Board of Directors may interpret or adjust the provisions of this Article Fifth to resolve any inconsistency or ambiguity or to remedy any formal defect, and may amend this Article Fifth with respect to any series of MRP Shares prior to the issuance of shares of such series.
(d) References to sections, subsections, clauses, sub clauses, paragraphs and subparagraphs are to such sections, subsections, clauses, sub clauses, paragraphs and subparagraphs contained herein, unless specifically identified otherwise.
(e) The headings contained in this Article Fifth are for convenience of reference only and shall not affect the meaning or interpretation of this Article Fifth.
SECTION 12. DEFINITIONS.
As used herein, 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:
Affiliate means, at any time, and with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person. As used in this definition, Control means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an Affiliate is a reference to an Affiliate of the Corporation.
Applicable Rate means the Series C Applicable Rate for the Series C MRP Shares.
Asset Coverage Cure Date means, with respect to the failure by the Corporation to satisfy the MRP Shares Asset Coverage Test on the last day of any month, the date that is thirty (30) calendar days following such date.
-19-
Board of Directors or Board means the Board of Directors of the Corporation or any duly authorized committee thereof as permitted by applicable law.
Business Day means any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed.
Bylaws means the bylaws of the Corporation, as the same may be amended and restated from time to time.
Charter means the charter of the Corporation.
Commission means the United States Securities and Exchange Commission.
Common Shares means the shares of Common Stock, par value $.001 per share, of the Corporation.
Common Stock means common stock as defined in Article Fourth of the Charter.
Cure Date means the Asset Coverage Cure Date or the Overcollateralization Ratio Cure Date, as the case may be.
Default Period has the meaning set forth in Section 2(c)(ii) hereof.
Default Rate means, with respect to any series of the MRP Shares, for any calendar day, the Applicable Rate in effect on such day (without adjustment for any credit rating change on such series of the MRP Shares) plus 5% per annum.
Default Rate Cure Period has the meaning set forth in Section 2(c)(iii) hereof.
Delayed Redemption Date has the meaning set forth in Section 3(a)(iii) hereof.
Discounted Value means, with respect to any asset held by the Corporation as of any date, the quotient of the Market Value of such asset divided by the applicable discount factor set forth in the applicable Rating Agency Guidelines, as adjusted to take account of any diversification requirements in the applicable Rating Agency Guidelines.
Dividend Default has the meaning set forth in Section 2(c)(ii) hereof.
Dividend Payment Date means, with respect to any series of MRP Shares, the first (1st) Business Day of the month next following each Dividend Period.
Dividend Period means, with respect to any series of MRP Shares, the period beginning on and including the Original Issue Date and ending on and including the next following Quarterly Dividend Date, and each subsequent period from but excluding a Quarterly Dividend Date and ending on and including the next following Quarterly Dividend Date.
-20-
Dividend Rate has the meaning set forth in Section 2(c)(i) hereof.
Early Redemption Amount means the Series C MRP Shares Early Redemption Amount in the case of the Series C MRP Shares.
Fitch means Fitch Ratings, Inc. and its successors at law.
Fitch Guidelines mean the guidelines provided by Fitch, as may be amended from time to time, in connection with Fitchs ratings then assigned on any series of the MRP Shares.
Holder means, with respect to MRP Shares, the registered holder of MRP Shares as the same appears on the share ledger or share records of the Corporation.
LIBOR means, with respect to any Dividend Period for a series of MRP Shares, the rate for deposits in U.S. dollars having a maturity of three months commencing on the first day of the Dividend Period that appears on the Reuters page LIBOR01 as of 11:00 A.M., London time, two London Business Days prior to the first day of such Dividend Period. If such rate does not appear on such page at such time, then the Paying Agent will request the principal London offices of each of four major reference banks in the London interbank market, as selected and identified by the Issuer, to provide the Paying Agent with its offered quotation for deposits in U.S. dollars for the period of three months, commencing on the first day of the applicable Dividend Period, to prime banks in the London interbank market at approximately 11:00 A.M., London time, two London Business Days prior to the first day of such Dividend Period and in a principal amount of $5,000,000. If at least two quotations are provided, then LIBOR will be the arithmetic mean of those rates. If fewer than two quotations are provided, then LIBOR will be the arithmetic mean of the rates quoted at approximately 11:00 A.M. in the City of New York, two London Business days prior to the first day of such Dividend Period by three major banks in the City of New York selected and identified by the Issuer for loans in U.S. dollars to leading European banks, having a three-month maturity and in a principal amount of $5,000,000; provided, however, that if the banks selected and identified by the Issuer are not provided quotations in the manner described by this sentence, LIBOR for such Dividend Period shall be LIBOR in effect for the previous Dividend Period.
The Reuters screen LIBOR01 is the display designated as the Reuters screen LIBOR01, or such other page as may replace the Reuters screen LIBOR01 on that service or such other service or services as may be denominated for the purpose of displaying London interbank offered rates for U.S. dollar deposits by the British Bankers Association (the BBA), its successor, such as ICE Benchmark Administration Limited or such other entity assuming the responsibility of the BBA or its successor in calculating the London Inter-Bank Offered Rate in the event the BBA or its successor no longer does so.
London Business Day means a day that is a Monday, Tuesday, Wednesday, Thursday or Friday and is a day on which dealings in U.S. dollars are transacted in the London interbank market.
Mandatory Redemption Date has the meaning set forth in Section 3(a)(iii) hereof.
-21-
Market Value means the market value of an asset of the Corporation determined as follows: Equity securities traded on a national or foreign securities exchange or traded over-the-counter and quoted on the NASDAQ Stock Market are valued at the last reported sale price using valuation data provided by an independent pricing service or, if there was no sale on the valuation date, then the security is valued at the mean of the bid and ask prices as obtained on that day from one or more dealers regularly making a market in that security. Fixed income securities are valued at the mean of bid and ask prices provided by an independent pricing service or broker-dealers when such prices are believed to reflect the fair market value of such securities. Such bid and ask prices are determined taking into account securities prices, yields, maturities, call features, ratings, and institutional size trading in similar securities and developments related to specific securities. Short-term investments having a maturity of 60 days or less at time of purchase are valued on an amortized cost basis, to the extent that amortized cost approximates market value. Any securities for which it is determined that market prices are unavailable or inappropriate are valued at a fair value using a procedure determined in good faith by the Board of Directors.
MGCL means the Maryland General Corporation Law.
MRP Liquidation Preference Amount means $100,000 per share.
MRP Shares has the meaning set forth in Article Fourth of the Charter.
MRP Shares Asset Coverage Test means that the asset coverage with respect to all outstanding Senior Securities and Preferred Shares, including all Outstanding MRP Shares, determined in accordance with Section 18(h) of the 1940 Act (as in effect on the first date of issuance of MRP Shares) on the basis of values calculated as of a time within 48 hours (not including Sundays or holidays) next preceding the time of such determination, is at least 225%.
MRP Shares Overcollateralization Test means, so long as Fitch or any Other Rating Agency is then rating any series of the Outstanding MRP Shares, that all required Overcollateralization Ratios are in compliance with the Applicable Rating Agency Guidelines of such Rating Agency.
1940 Act means the Investment Company Act of 1940, as amended from time to time.
1940 Act Majority has the meaning set forth in Section 4(f) hereof.
Notice of Redemption has the meaning set forth in Section 3(c) hereof.
NRSRO means a nationally recognized statistical ratings organization.
Original Issue Date means, with respect to a series of MRP Shares, the original date of issue thereof. In the case of the Series C MRP Shares, the Original Issue Date is February 19, 2014.
-22-
Other Rating Agency means each NRSRO, if any, other than Fitch then providing a rating for any series of the MRP Shares pursuant to the request of the Corporation.
Other Rating Agency Guidelines means the guidelines provided by each Other Rating Agency, as may be amended from time to time, in connection with the Other Rating Agencys rating of any series of MRP Shares.
Outstanding or outstanding means, with respect to a series of MRP Shares, as of any date, the MRP Shares of such series theretofore issued by the Corporation except, without duplication, any MRP Shares of such series theretofore canceled, redeemed or repurchased by the Corporation. Notwithstanding the foregoing, (A) for purposes of voting rights (including the determination of the number of shares required to constitute a quorum), any of the MRP Shares to which the Corporation or any Affiliate of the Corporation shall be the Holder shall be disregarded and not deemed outstanding, and (B) for purposes of determining the MRP Shares Overcollateralization Test, MRP Shares held by the Corporation shall be disregarded and not deemed outstanding but shares held by any Affiliate of the Corporation shall be deemed outstanding.
Overcollateralization Ratio, means, as of any date, each ratio, calculated in accordance with the applicable Rating Agency Guidelines, of (a) the Discounted Value of the Corporations assets to (b) the aggregate liquidation preference of outstanding Preferred Shares plus certain liabilities of the Corporation.
Overcollateralization Ratio Cure Date means, with respect to the failure by the Corporation to satisfy the Overcollateralization Ratio Test as of a given Valuation Date, the date which is ten (10) Business Days following such Valuation Date.
Parity Shares shall have the meaning set forth in Section 4(f)(iii) hereof.
Paying Agent means The Bank of New York Mellon, unless and until another entity appointed by a resolution of the Board of Directors enters into an agreement with the Corporation to serve as paying agent with respect to the MRP Shares.
Person or person means and includes an individual, a corporation, a partnership, a trust, a company, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.
Preferred Shares means the shares of Preferred Stock, par value $0.001 per share, including the MRP Shares, of the Corporation from time to time.
Preferred Stock means preferred stock as defined in Article Fourth of the Charter.
Quarterly Dividend Date means the last day of each of March, June, September or December.
-23-
Rating Agency means each of Fitch (if Fitch is then rating MRP Shares) and any Other Rating Agency.
Rating Agency Guidelines mean Fitch Guidelines (if Fitch is then rating MRP Shares) and any Other Rating Agency Guidelines (if any Other Rating Agency is then rating MRP Shares), whichever is applicable.
Redemption Date means any date on which the Corporation is required to redeem any MRP Shares pursuant to the provisions of this Article Fifth, determined without regard to the Special Proviso.
Redemption Default has the meaning set forth in Section 2(c)(ii) hereof.
SEC means the Securities and Exchange Commission of the United States, or any successor thereto.
Securities Purchase Agreement means the Securities Purchase Agreement dated February 19, 2014, as amended from time to time, of the Corporation in respect of the MRP Shares.
Senior Securities means indebtedness for borrowed money of the Corporation including, without limitation, bank borrowings and (without duplication) other indebtedness of the Corporation within the meaning of Section 18 of the 1940 Act.
Series C Applicable Rate means the sum of (i) LIBOR plus (ii) 2.15% (215 basis points), as adjusted (if applicable) in accordance with Section 2(c) hereof.
Series C MRP Shares has the meaning set forth in the first paragraph of this Article Fifth following the caption Designation.
Series C MRP Shares Early Redemption Amount means, in connection with any redemption of the Series C MRP Shares pursuant to Section 3(a)(i) or 3(a)(ii), an amount equal to the applicable percentage of the MRP Liquidation Preference Amount of the Series C MRP Shares or portion thereof to be redeemed as follows:
IF REDEEMED DURING THE 12 MONTH PERIOD ENDING APRIL 1, |
APPLICABLE PERCENTAGE | |
2015 |
2.00% | |
2016 |
2.00% | |
2017 |
1.00% | |
2018 |
1.00% | |
2019 |
1.00% | |
2020 |
0.50% | |
2021 and later years |
0% |
-24-
Special Proviso shall have the meaning set forth in Section 3(a)(iii) hereof.
Term Redemption Date means April 1, 2024 for the Series C MRP Shares.
Valuation Date means every Friday, or, if such day is not a Business Day, the next preceding Business Day; provided, however, that the first Valuation Date may occur on any other date established by the Corporation; provided, further, however, that such first Valuation Date shall be not more than one week from the date on which MRP Shares initially are issued.
Voting Period shall have the meaning set forth in Section 4(b) hereof.
[Remainder of this page intentionally left blank]
-25-
SIXTH. Series E of Fixed Rate Mandatory Redeemable Preferred Shares. The number of shares, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, of the Fixed Rate Mandatory Redeemable Preferred Shares, Series E are as set forth in this Article Sixth.
DESIGNATION
FIXED RATE MANDATORY REDEEMABLE PREFERRED SHARES, SERIES E: A series of 1,320 shares of Preferred Stock, par value $.001 per share, liquidation preference $100,000 per share plus accumulated but unpaid dividends, if any, thereon (whether or not earned or declared), is hereby designated Fixed Rate Mandatory Redeemable Preferred Shares, Series E (the Series E MRP Shares). Each Series E MRP Share shall be issued on the Original Issue Date. The initial Dividend Period for the Series E MRP Shares shall be the period from and including the Original Issue Date to and including March 31, 2019. Each Series E MRP Share shall have a dividend rate equal to the Series E Applicable Rate from time to time, and shall have such other preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption, in addition to those required by applicable law or set forth in the Charter applicable to Preferred Stock of the Corporation, as are set forth in this Article Sixth. The Series E MRP Shares shall constitute a separate series of Preferred Stock of the Corporation, and each Series E MRP Share shall be identical.
The Board of Directors of the Corporation may, in the future, by resolution duly adopted, without stockholder approval (except as otherwise provided by this Article Sixth or required by applicable law), classify additional shares out of the Corporations authorized and unissued Preferred Stock as one or more additional series of MRP Shares, with the same preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption and other terms herein described, except that the Original Issue Date, initial Dividend Period and Applicable Rate pertaining to the MRP Shares of each such additional series, and any other changes in the terms herein set forth, shall be as set forth in the Articles Supplementary with respect to such additional series.
As used herein, capitalized terms not otherwise defined herein shall have the meanings provided in Section 12 hereof.
SECTION 1. RANKING.
(a) The MRP Shares shall rank on a parity with shares of any other series of Preferred Stock as to the payment of dividends to which the shares are entitled and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Corporation.
(b) No Holder of MRP Shares shall have, solely by reason of being a Holder, any preemptive right, or, unless otherwise determined by the Board of Directors, other right to acquire, purchase or subscribe for any Preferred Stock, Common Stock or other securities of the Corporation which it may hereafter issue or sell.
-26-
SECTION 2. DIVIDENDS.
(a) The Holders of MRP Shares shall be entitled to receive quarterly cumulative cash dividends, when, as and if authorized by the Board of Directors and declared by the Corporation, out of funds legally available therefor, at the rate per annum equal to the Dividend Rate, and no more, payable on the respective dates determined as set forth in paragraph (b) of this Section 2. Dividends on Outstanding MRP Shares shall accumulate from the Original Issue Date.
(b) (i) Dividends on MRP Shares shall be payable quarterly when, as and if authorized by the Board of Directors and declared by the Corporation beginning on the initial Dividend Payment Date with respect to the initial Dividend Period, and on the applicable Dividend Payment Date with respect to each subsequent Dividend Period.
(ii) Except as otherwise set forth herein, the Corporation shall deposit irrevocably in trust with the Paying Agent not later than 3:00 p.m., New York City time, on the Business Day next preceding each Dividend Payment Date an amount of same-day funds equal to the aggregate amount of dividends to be paid to all Holders of MRP Shares on such Dividend Payment Date and the Holders shall have received such funds on such Dividend Payment Date. The Corporation shall not be required to establish any reserves for the payment of dividends.
(iii) Each dividend on MRP Shares shall be paid on the Dividend Payment Date therefor to the Holders thereof as their names appear in the record books of the Corporation at the close of business on the fifth (5th) day prior to such Dividend Payment Date (or if such day is not a Business Day, the next preceding Business Day). 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 share ledger or share records of the Corporation at the close of business on a date, not exceeding five (5) calendar days preceding the payment date thereof, as may be fixed by the Board of Directors. No interest will be payable in respect of any dividend payment or payments which may be in arrears.
(c) (i) Subject to the provisions of Sections 2(c)(ii) and 2(c)(iii) below, the dividend rate applicable to a series of MRP Shares (the Dividend Rate) with respect to each Dividend Payment Date shall be determined as follows:
(A) If on the first day of the Dividend Period immediately preceding such Dividend Payment Date the MRP Shares of such series are rated no lower than A by Fitch (and no lower than the equivalent of such rating by any Other Rating Agency), the Dividend Rate for such series of MRP Shares shall be the Applicable Rate.
(B) If on the first day of the Dividend Period immediately preceding such Dividend Payment Date the MRP Shares of such series are rated lower than A by Fitch (or lower than the equivalent of such rating by any Other Rating Agency), the Dividend Rate for such series of MRP Shares shall be the Applicable Rate plus the enhanced dividend amount (which shall not be cumulative) set forth opposite the lowest of such ratings in the table below.
FITCH RATING |
ENHANCED DIVIDEND AMOUNT | |
A- |
0.5% | |
BBB+ to BBB- |
2.0% | |
BB+ or below |
4.0% |
-27-
(C) The Corporation shall, at all times, use its reasonable best efforts to cause at least one NRSRO to maintain a current long-term credit rating on each series of the MRP Shares for so long as such series is Outstanding. If, notwithstanding the foregoing, no Rating Agency is rating a series of MRP Shares, the Dividend Rate (so long as no such rating exists) for such series of MRP Shares shall be equal to the Applicable Rate plus 4.0% unless the Dividend Rate is the Default Rate, in which case the Dividend Rate shall remain the Default Rate.
(ii) Subject to the cure provisions of Section 2(c)(iii) below, a Default Period will commence on any Dividend Payment Date or any Redemption Date if the Corporation fails to deposit irrevocably in trust with the Paying Agent not later than 3:00 p.m., New York City time, an amount of same-day funds equal to (A) the full amount of any dividend payable on such Dividend Payment Date (a Dividend Default) or (B) the full amount of any redemption price payable on such Redemption Date (a Redemption Default) and the Holders have not received such funds on the same Business Day. Subject to the cure provisions of Section 2(c)(iii) below, a Default Period with respect to a Dividend Default or a Redemption Default shall end on the Business Day on which, by 12:00 noon, New York City time, all unpaid dividends and any unpaid redemption price shall have been deposited irrevocably in trust, in same-day funds, with the Paying Agent (and the Holders have received such funds on the same Business Day). In the case of a Dividend Default or a Redemption Default, the Dividend Rate for each day during the Default Period shall be equal to the Default Rate.
(iii) No Default Period with respect to a Dividend Default or Redemption Default (if such default is not solely due to the willful failure of the Corporation) shall be deemed to have commenced if the amount of any dividend or any redemption price due is deposited irrevocably in trust, in same-day funds, with the Paying Agent (and the Holders have received such funds on the same Business Day) within three (3) Business Days (the Default Rate Cure Period) after the applicable Dividend Payment Date or Redemption Date, together with an amount equal to the Default Rate applied to the amount of such non-payment based on the actual number of days within the Default Rate Cure Period divided by 360.
(iv) The amount of dividends per share payable on each Dividend Payment Date shall be computed by multiplying the Dividend Rate for the immediately preceding Dividend Period by a fraction, the numerator of which shall be 90 and the denominator of which shall be 360, multiplying the amount so obtained by the MRP Liquidation Preference Amount, and rounding the amount so obtained to the nearest cent. Dividends payable on any MRP Shares for any period of less than a full quarterly Dividend Period including in connection with the first Dividend Period or upon any redemption of such shares on any date other than on a Dividend Payment Date, shall be computed by multiplying the Dividend Rate for such period by a fraction, the numerator of which shall be the actual number of days in such period and the denominator of which shall be 360, multiplying the amount so obtained by the MRP Liquidation Preference Amount, and rounding the amount so obtained to the nearest cent.
-28-
(d) Any dividend payment made on MRP Shares shall first be credited against the earliest accumulated but unpaid dividends due with respect to such MRP Shares.
(e) For so long as any MRP Shares are Outstanding, except as contemplated herein, the Corporation will not declare, pay or set apart for payment any dividend or other distribution (other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase, Common Shares or other shares of capital stock, if any, ranking junior to the MRP Shares as to dividends or upon liquidation) with respect to Common Shares or any other shares of the Corporation ranking junior to or on a parity with the MRP Shares as to dividends or upon liquidation, 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 Corporation ranking junior to the MRP Shares as to dividends and upon liquidation) or any such parity shares (except by conversion into or exchange for shares of the Corporation ranking junior to or on a parity with the MRP Shares as to dividends and upon liquidation), unless (1) immediately after such transaction the Corporation would satisfy the MRP Shares Asset Coverage Test and the MRP Shares Overcollateralization Test, (2) full cumulative dividends on the MRP Shares due on or prior to the date of the transaction have been declared and paid to the Holders of MRP Shares, and (3) the Corporation has redeemed the full number of MRP Shares required to be redeemed by any provision for mandatory redemption contained in Section 3(a) (without regard to the provisions of the Special Proviso).
SECTION 3. REDEMPTION.
(a) (i) The Corporation may, at its option, redeem in whole or in part out of funds legally available therefor, MRP Shares at any time and from time to time, upon not less than 30 calendar days nor more than 35 calendar days notice as provided in Section 3(c), at a redemption price per share equal to the sum of (A) the MRP Liquidation Preference Amount plus accumulated but unpaid dividends and distributions on each MRP Share to be redeemed (whether or not earned or declared by the Corporation, but excluding interest thereon), to, but excluding, the date fixed for redemption, plus (B) the Make-Whole Amount, if any. Notwithstanding the foregoing, the Corporation shall not give a notice of or effect any redemption pursuant to this Section 3(a)(i) unless (in the case of any partial redemption of MRP Shares), on the date on which the Corporation intends to give such notice and on the date of redemption, the Corporation would satisfy the MRP Shares Overcollateralization Test and the MRP Shares Asset Coverage Test immediately subsequent to such redemption, if such redemption were to occur on such date.
(ii) If the Corporation fails to satisfy (1) the MRP Shares Asset Coverage Test as of the last day of any month or (2) the MRP Shares Overcollateralization Test as of any Valuation Date, and any such failure is not cured as of the close of business on the applicable Cure Date, the Corporation shall, subject to Section 3(a)(iii), redeem MRP Shares at a redemption price per share equal to the sum of (A) the MRP Liquidation Preference Amount plus accumulated but unpaid dividends and distributions on each MRP Share to be redeemed (whether or not earned or
-29-
declared by the Corporation, but excluding interest thereon) to, but excluding, the date fixed for redemption, plus (B) an additional amount equal to 1% of the MRP Liquidation Preference Amount. The number of MRP Shares to be redeemed in such circumstances will be equal to the product of (I) the quotient of the number of Outstanding MRP Shares divided by the aggregate number of outstanding Preferred Shares of the Corporation (including the MRP Shares) which have an asset coverage test greater than or equal to 225% multiplied by (II) the minimum number of outstanding Preferred Shares of the Corporation (including the MRP Shares) the redemption of which, if deemed to have occurred immediately prior to the opening of business on the applicable Cure Date, would result in the Corporation satisfying the MRP Shares Asset Coverage Test or the MRP Shares Overcollateralization Test, as the case may be, as of such Cure Date (provided that, if there is no such number of MRP Shares the redemption of which would have such result, the Corporation shall, subject to Section 3(a)(iii), redeem all MRP Shares then Outstanding). Notwithstanding the foregoing, if the Corporation satisfies the MRP Asset Coverage Test and the MRP Overcollateralization Test as of the applicable Cure Date before taking into account any redemptions of Preferred Shares, the Corporation shall not be obligated to redeem any Preferred Shares under this Section 3(a)(ii). The asset coverage in respect of MRP Shares provided for in this Section 3(a)(ii) shall be determined on the basis of values calculated as of a time within 48 hours (not including Sundays or holidays) next preceding the time of such determination.
(iii) The Corporation shall effect any redemption pursuant to subparagraph (a)(ii) of this Section 3 not less than 30 calendar days and not more than 35 calendar days after the Cure Date (the Mandatory Redemption Date), provided, that if the Corporation (1) does not have funds legally available for the redemption of, or (2) is not otherwise legally permitted to redeem, the number of MRP Shares which would be required to be redeemed by the Corporation under subparagraph (a)(ii) of this Section 3 if sufficient funds were available, together with shares of other Preferred Shares which are subject to mandatory redemption under provisions similar to those contained in this Section 3(a) (the foregoing provisions of clauses (1) and (2) of this proviso being referred to as the Special Proviso), the Corporation shall redeem the MRP Shares and other Preferred Shares which it was unable to redeem on the earliest practicable date on which the Corporation has such funds available and is not otherwise prohibited from making such redemption under applicable laws (the Delayed Redemption Date), upon notice given pursuant to Section 3(c) to Holders of the MRP Shares to be redeemed and to the Paying Agent.
(iv) The Corporation shall redeem all Outstanding Series E MRP Shares on the Term Redemption Date at the MRP Liquidation Preference Amount plus accumulated but unpaid dividends and distributions thereon (whether or not earned or declared by the Corporation, but excluding interest thereon), to, but excluding, the Term Redemption Date.
(v) With respect to any redemption required under subparagraphs (ii), (iii) or (iv) of this Section 3(a), the Corporation shall deposit irrevocably in trust with the Paying Agent an amount of same-day funds sufficient to redeem the specified number of MRP Shares, not later than 3:00 p.m., New York City time, on the Business Day next preceding the Mandatory Redemption Date, the Delayed Redemption Date or the Term Redemption Date, as the case may be, and the Holders shall have received such funds on the Mandatory Redemption Date, the Delayed Redemption Date or the Term Redemption Date, as the case may be.
-30-
(b) If fewer than all of the Outstanding shares of a series of MRP Shares are to be redeemed pursuant to any provision of Section 3(a), the Corporation shall allocate the number of shares to be redeemed pro rata among all Holders of MRP Shares of such series in proportion to the number of MRP Shares of such series held by such Holders.
(c) In the event of any redemption pursuant to Section 3(a), the Corporation will file a notice of its intention to redeem with the Commission under Rule 23c-2 under the 1940 Act or any successor provision to the extent applicable. In addition, the Corporation shall deliver a notice of redemption (the Notice of Redemption) containing the information set forth below to the Holders of MRP Shares to be redeemed not less than 30 calendar days and not more than 35 calendar days prior to the applicable redemption date. The Notice of Redemption shall be addressed to the Paying Agent and to the Holders of MRP Shares at their addresses appearing in the record books of the Corporation. Such Notice of Redemption shall set forth (1) the date fixed for redemption, (2) the number and identity of MRP Shares to be redeemed, (3) the redemption price (specifying the amount of accumulated dividends to be included therein and the amount of the Make-Whole Amount, if any, or redemption premium, if any), (4) that dividends on the shares to be redeemed will cease to accumulate on such date fixed for redemption, and (5) the provision of this Article Sixth under which redemption shall be made. No defect in the Notice of Redemption or in the transmittal or mailing thereof will affect the validity of the redemption proceedings, except as required by applicable law.
(d) Notwithstanding the provisions of Section 3(a), but subject to Section 5(b), no MRP Shares may be redeemed unless all dividends in arrears on the Outstanding MRP Shares and all shares of capital stock of the Corporation ranking on a parity with the MRP Shares with respect to payment of dividends or upon liquidation have been or are being contemporaneously paid or set aside for payment; provided, however, that the foregoing shall not prevent the purchase or acquisition of all Outstanding MRP Shares 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 MRP Shares.
(e) Provided that Notice of Redemption has been given to the Paying Agent and the Holders of the MRP Shares in accordance with Section 3(c), upon the deposit irrevocably in trust with the Paying Agent (and the receipt of such funds by the Holders), on or prior to the date fixed for redemption, of same-day funds in an amount sufficient to redeem the number of MRP Shares to be redeemed, dividends on such shares shall cease to accumulate and such shares shall no longer be deemed to be Outstanding for any purpose (including, without limitation, for purposes of calculating whether the Corporation has satisfied the MRP Shares Asset Coverage Test or the MRP Shares Overcollateralization Test), 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 specified herein, but without any interest or other additional amount. Such redemption price shall be paid by the Paying Agent to the Holders and, upon written request, the Corporation shall be entitled to receive from the Paying Agent, promptly after the date fixed for redemption (and after the Holders have received all amounts to which such Holders are entitled), any cash deposited with the Paying Agent in excess of (1) the aggregate redemption price of the MRP Shares called for redemption on such date and (2) such other amounts, if any, to which Holders of MRP Shares called for redemption may be entitled. Any funds so deposited that are
-31-
unclaimed at the end of two years from such redemption date shall, to the extent permitted by law, be paid to the Corporation upon its written request, after which time the Holders so called for redemption may look only to the Corporation for payment of the redemption price and all other amounts, if any, to which they may be entitled.
(f) To the extent that any redemption for which a Notice of Redemption has been given is not made by reason of the Special Proviso, such redemption shall be made as soon as practicable to the extent such funds become legally available or such redemption is no longer otherwise prohibited. Failure to redeem MRP Shares shall be deemed to exist when the Corporation shall have failed, for any reason whatsoever, to pay the holders of MRP Shares the redemption price with respect to any shares for which such Notice of Redemption has been given in accordance with Sections 3 hereof. Notwithstanding the fact that the Corporation may not have redeemed MRP Shares for which a Notice of Redemption has been given, dividends may be declared and paid on MRP Shares and shall include those MRP Shares (x) for which Notice of Redemption has been given but as to which the Corporation shall not have deposited irrevocably in trust with the Paying Agent same-day funds in an amount sufficient to effect such redemption and (y) for which Notice of Redemption has been given but as to which the Holders have not received an amount sufficient to effect such redemption.
(g) The Corporation is required to deposit funds with the Paying Agent in accordance with the terms of this Article Sixth for the benefit of the Holders of MRP Shares and such funds will be held in trust by the Paying Agent for the benefit of such Holders. For the avoidance of doubt, if the Corporation irrevocably deposits such funds with the Paying Agent in accordance with the terms of this Article Sixth and the Holders of MRP Shares do not receive such funds for any reason whatsoever, the Corporation agrees to pay such funds directly to the Holders of MRP Shares in a timely manner.
(h) Except for the provisions described above, nothing contained in this Article Sixth limits any right of the Corporation to purchase or otherwise acquire any MRP Shares at any price, whether higher or lower than the price that would be paid in connection with an optional or mandatory redemption, provided that, at the time of any such purchase, (1) there is no arrearage in the payment of dividends on, or the redemption price with respect to, any MRP Shares for which Notice of Redemption has been given, (2) the Corporation would satisfy the MRP Shares Asset Coverage Test and the MRP Shares Overcollateralization Test after giving effect to such purchase or acquisition and (3) any offer to purchase or otherwise acquire any MRP Shares is made by the Corporation pro rata to all Holders of MRP Shares at the time outstanding upon the same terms and conditions.
(i) In the case of any redemption pursuant to this Section 3, only whole MRP Shares shall be redeemed, and in the event that any provision of the Charter would require redemption of a fractional share, the Corporation or the Paying Agent, as applicable, shall be authorized to round up so that only whole shares are redeemed.
-32-
SECTION 4. VOTING RIGHTS.
(a) Except for matters which do not require the vote of Holders of MRP Shares under the 1940 Act and except as otherwise provided in the Charter or the Bylaws, herein or as otherwise required by applicable law, (1) each Holder of MRP Shares shall be entitled to one vote for each MRP Share held on each matter submitted to a vote of stockholders of the Corporation, and (2) the holders of outstanding Preferred Shares and Common Shares shall vote together as a single class on all matters submitted to stockholders; provided, however, that the holders of outstanding Preferred Shares shall be entitled, as a class, to the exclusion of the holders of shares of all other classes of stock of the Corporation, to elect two directors of the Corporation at all times and, subject to paragraph (b) of this Section 4, the holders of outstanding Common Shares, voting separately as a single class, shall be entitled to elect the balance of the members of the Board of Directors. Subject to the foregoing rights of the Holders of the MRP Shares, the identity and class (if the Board of Directors is then classified) of the nominees for such directors may be fixed by the Board of Directors.
(b) During any period in which any one or more of the conditions described below shall exist (such period being referred to herein as a Voting Period), the number of directors constituting the Board of Directors shall automatically increase by the smallest number that, when added to the two directors elected exclusively by the holders of Preferred Shares, would constitute a majority of the Board of Directors as so increased by such smallest number; and the holders of 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 the Corporation), 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:
(i) if at the close of business on any Dividend Payment Date accumulated dividends (whether or not earned or declared) on Preferred Shares equal to at least two full years dividends shall be due and unpaid; or
(ii) if at any time holders of any Preferred Shares are entitled under the 1940 Act to elect a majority of the directors of the Corporation.
If a Voting Period has commenced pursuant to Section 4(b)(i), the Voting Period shall not end until all such accumulated dividends are paid to the holders of Preferred Shares or have been otherwise provided for in a manner approved by the affirmative vote of a majority of all votes cast by the holders of the Preferred Shares, voting as a class on a one-vote-per-share basis. Upon the termination of a Voting Period, the voting rights described in this paragraph (b) of Section 4 shall cease, subject always, however, to the revesting of such voting rights in the holders of Preferred Shares upon the further occurrence of any of the events described in this paragraph (b) of Section 4.
(c) As soon as practicable after the accrual of any right of the holders of Preferred Shares to elect additional directors as described in paragraph (b) of this Section 4, the Corporation shall call a special meeting of such holders, and mail a notice of such special meeting to such holders, such meeting to be held not less than 10 calendar days nor more than 30 calendar days after the date of mailing of such notice. If the Corporation fails to send such
-33-
notice or if a special meeting is not called at the expense of the Corporation, it may be called by any such holder on like notice. The record date for determining the holders entitled to notice of and to vote at such special meeting shall be the close of business on the fifth Business Day preceding the day on which such notice is mailed. At any such special meeting and at each meeting of holders of Preferred Shares held during a Voting Period at which directors are to be elected, such holders, voting as a separate class (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), shall be entitled to elect the number of directors prescribed in paragraph (b) of this Section 4 on a one-vote-per-share basis.
(d) The terms of office of all persons who are directors of the Corporation at the time of a special meeting of Holders of the MRP Shares and holders of other Preferred Shares to elect directors shall continue, notwithstanding the election at such meeting by the Holders of the MRP Shares and such holders of other Preferred Shares of the number of directors that they are entitled to elect, and the persons so elected by such holders, together with the two incumbent directors elected by such holders and the remaining incumbent directors, shall constitute the duly elected directors of the Corporation.
(e) Simultaneously with the termination of a Voting Period, the terms of office of the additional directors elected by the Holders of the MRP Shares and holders of other Preferred Shares pursuant to paragraph (b) of this Section 4 shall terminate, the number of directors constituting the Board of Directors shall decrease accordingly, the remaining directors shall constitute the directors of the Corporation and the voting rights of such holders to elect additional directors pursuant to paragraph (b) of this Section 4 shall cease, subject to the provisions of the last sentence of paragraph (b) of this Section 4.
(f) So long as any of the MRP Shares are Outstanding, the Corporation will not, without the affirmative vote of the holders of a majority of the outstanding Preferred Shares determined with reference to a majority of outstanding voting securities as that term is defined in Section 2(a)(42) of the 1940 Act (a 1940 Act Majority), voting as a separate class:
(i) amend, alter or repeal (including by merger, consolidation or otherwise) any of the preferences, rights or powers of such class of Preferred Shares so as to affect materially and adversely such preferences, rights or powers;
(ii) amend, alter or repeal (including by merger, consolidation or otherwise) any of the provisions of the Charter or the Bylaws if such amendment, alteration or repeal would materially and adversely affect any privilege, preference, right or power of the MRP Shares or the Holders thereof or would restrict or limit the ability of the Corporation to comply with the terms and provisions of the Securities Purchase Agreement;
(iii) create, authorize or issue shares of any class or series of capital stock, including any additional series of MRP Shares, ranking on a parity with the Preferred Shares with respect to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Corporation (Parity Shares), or any securities convertible into, or warrants, options or similar rights to purchase, acquire or receive, Parity Shares or reclassify any authorized shares of capital stock of the Corporation into Parity Shares; provided, however, that,
-34-
notwithstanding the foregoing, the Board of Directors, without the vote or consent of the holders of the Preferred Shares may from time to time authorize, create and classify, and the Corporation, to the extent permitted by the 1940 Act, may from time to time issue, Parity Shares, and may authorize, reclassify and/or issue any additional MRP Shares, including shares previously purchased or redeemed by the Corporation, if, upon issuance of such Parity Shares, (A) the Corporation would satisfy the MRP Shares Asset Coverage Test and the MRP Shares Overcollateralization Test and, in all material respects, the other provisions of this Article Sixth and (B) all accrued and unpaid dividends on the MRP Shares shall have been paid in full and all redemptions required in respect of the MRP Shares (without regard to the Special Proviso) shall have been effectuated, except to the extent the proceeds of the issuance of such Preferred Shares are used to pay such dividends in full and to effect all such redemptions; provided, further, that if the holders of such Parity Shares have the benefit of any rights substantially similar to Section 2(e), Section 3(a)(ii), this Section 4(f)(iii) or Section 4(h) which are additional to or more beneficial than the rights of the Holders of MRP Shares under such sections, then this Article Sixth shall be deemed to include such additional or more beneficial rights for the benefit of all Holders of MRP Shares. Such rights incorporated herein shall be terminated when and if terminated with respect to such Parity Shares and shall be deemed amended or modified concurrently with any amendment or modification of such Parity Shares but, in no event, shall any such termination, amendment or modification affect the remaining rights of the Holders of MRP Shares;
(iv) liquidate or dissolve the Corporation;
(v) create, authorize, issue, incur or suffer to exist any indebtedness for borrowed money or any direct or indirect guarantee of such indebtedness for borrowed money or any direct or indirect guarantee of such indebtedness, except the Corporation may borrow and issue indebtedness as may be permitted by the Corporations investment restrictions or as may be permitted by the 1940 Act; provided, however, that transfers of assets by the Corporation subject to an obligation to repurchase shall not be deemed to be indebtedness for purposes of this provision to the extent that after giving effect to any such transaction the Corporation would satisfy the MRP Shares Overcollateralization Test; or
(vi) create, authorize or issue any shares of capital stock of the Corporation which are senior to the Preferred Shares with respect to the payment of dividends, the making of redemptions, liquidation preference or the distribution of assets of the Corporation, or any securities convertible into, or warrants, options or similar rights to purchase, acquire or receive, such shares of capital stock ranking senior to the Preferred Shares or reclassify any authorized shares of capital stock of the Corporation into any shares ranking senior to the Preferred Shares; or
(vii) enter into, become a party to, be bound by or adopt or allow to exist any agreement or instrument or any evidence of indebtedness which contains restrictive covenants intended to limit the right of the Corporation to make dividends, distributions, redemptions or repurchases of Preferred Shares (each a Restricted Payment Covenant) which are more restrictive than the most restrictive of the provisions of Section 10.6 of the Note Purchase Agreement, as such Note Purchase Agreement is in effect on January 29, 2019 other than Restricted Payment Covenants that are more restrictive as a result of (1) a change in the laws or
-35-
regulations or the Rating Agency Guidelines to which the Corporation is subject or (2) dividends, distributions, redemptions or repurchases of Preferred Shares being blocked or restricted as a result of the occurrence of any default or event of default (as such terms are defined under any agreement or instrument). For the avoidance of doubt, an amendment to, or adoption of a covenant (other than a Restricted Payment Covenant) in any instrument or agreement evidencing indebtedness of the Corporation (including, without limitation, the Credit Agreement) shall not require the affirmative vote of a 1940 Act Majority of the holders of the Preferred Shares pursuant to this Section 4(f)(vii);
(g) The affirmative vote of the holders of a 1940 Act Majority of the outstanding Preferred Shares, voting as a separate class, shall be required to approve any plan of reorganization (as such term is used in the 1940 Act) adversely affecting such shares or any action requiring a vote of security holders of the Corporation under Section 13(a) of the 1940 Act.
(h) The affirmative vote of the holders of a 1940 Act Majority of any series of MRP Shares, voting separately as a series, shall be required with respect to (i) any matter that materially and adversely affects the rights, preferences, or powers of such series in a manner different from that of other separate series of classes of the Corporations shares of capital stock or (ii) any matter described in Section 4(f)(vi). The vote of holders of any shares described in this Section 4(h) will in each case be in addition to a separate vote of the requisite percentage of Common Shares and/or Preferred Shares, if any, necessary to authorize the action in question.
(i) Unless otherwise required by law, Holders of MRP Shares shall not have any relative rights or preferences or other special rights other than those specifically set forth herein. The Holders of MRP Shares shall have no rights to cumulative voting. If the Corporation fails to pay any dividends on the MRP Shares, the exclusive remedy of Holders of MRP Shares shall be the right to elect directors pursuant to the provisions of this Section 4 and such other rights as are expressly provided for by the Charter or are available to stockholders under applicable law or in a proceeding in equity.
(j) Any vote, amendment, waiver, or consent granted or to be effected by any Holder of MRP Shares that has agreed to transfer such MRP Shares to the Corporation or any Affiliate of the Corporation and has agreed to provide such waiver, vote, amendment or modification as a condition to such transfer shall be void and of no effect except as to such Holder.
(k) The foregoing voting provisions shall not apply with respect to the MRP Shares if, at or prior to the time when a vote is required, such shares have been (i) redeemed or (ii) called for redemption and the Corporation shall have deposited irrevocably in trust with the Paying Agent an amount of same-day funds sufficient to effect such redemption (and the Holders shall have received such funds).
-36-
SECTION 5. LIQUIDATION RIGHTS.
(a) Upon the dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, the Holders of MRP Shares then Outstanding, together with holders of shares of any outstanding Preferred Shares ranking on a parity with the MRP Shares upon dissolution, liquidation or winding up, shall be entitled to receive and to be paid out of the assets of the Corporation (or the proceeds thereof) available for distribution to its stockholders after satisfaction of claims of creditors of the Corporation, but before any distribution or payment shall be made in respect of the Common Shares, an amount equal to the liquidation preference with respect to such shares. The liquidation preference for MRP Shares shall be $100,000 per share, plus an amount equal to all accumulated dividends thereon (whether or not earned or declared but without interest) to the date payment of such distribution is made in full or an amount of same-day funds sufficient for the payment thereof is deposited irrevocably in trust with the Paying Agent. No redemption premium shall be paid upon any liquidation even if such redemption premium would be paid upon optional or mandatory redemption of the relevant shares. In determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or otherwise, is permitted under the MGCL, amounts that would be needed, if the Corporation were to be dissolved at the time of distribution, to satisfy the liquidation preference of the MRP Shares will not be added to the Corporations total liabilities.
(b) If, upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the assets of the Corporation available for distribution among the holders of all outstanding Preferred Shares shall be insufficient to permit the payment in full to holders of the amounts to which they are entitled, then the available assets shall be distributed among the holders of all outstanding Preferred Shares ratably in any distribution of assets according to the respective amounts which would be payable on all the shares if all amounts thereon were paid in full.
(c) Upon the dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, until payment in full is made to the Holders of MRP Shares of the liquidation distribution to which they are entitled, (1) no dividend or other distribution shall be made to the holders of Common Shares or any other class of shares of capital stock of the Corporation ranking junior to MRP Shares upon dissolution, liquidation or winding up and (2) no purchase, redemption or other acquisition for any consideration by the Corporation shall be made in respect of the Common Shares or any other class of shares of capital stock of the Corporation ranking junior to MRP Shares upon dissolution, liquidation or winding up.
(d) A consolidation, reorganization or merger of the Corporation with or into any company, trust or other legal entity, or a sale, lease or exchange of all or substantially all of the assets of the Corporation in consideration for the issuance of equity securities of another company, trust of other legal entity shall not be deemed to be a liquidation, dissolution or winding up, whether voluntary or involuntary, for the purposes of this Section 5.
(e) After the payment to the holders of Preferred Shares of the full preferential amounts provided for in this Section 5, the holders of Preferred Shares as such shall have no right or claim to any of the remaining assets of the Corporation.
(f) Subject to the rights of the holders of shares of any series or class or classes of stock ranking on a parity with MRP Shares with respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Corporation, after payment shall have been made
-37-
in full to the Holders of the MRP Shares as provided in paragraph (a) of this Section 5, but not prior thereto, any other series or class or classes of stock ranking junior to MRP Shares with respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Corporation shall, subject to any respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Holders of the MRP Shares shall not be entitled to share therein.
SECTION 6. RATING AGENCIES.
(a) If a Rating Agency shall cease to rate the securities of closed-end management investment companies generally, the Board of Directors shall terminate the designation of such Rating Agency as a Rating Agency hereunder.
(b) The Board of Directors may elect to terminate the designation of any Rating Agency as a Rating Agency hereunder with respect to a series of MRP Shares so long as either (i) immediately following such termination, there would be at least one Rating Agency providing a rating with respect to such series or (ii) it replaces the terminated Rating Agency with another NRSRO and provides notice thereof to the Holders of such series; provided, however, that such replacement shall not occur unless such replacement Other Rating Agency shall have at the time of such replacement (A) published a rating for the MRP Shares of such series and (B) entered into an agreement with the Corporation to continue to publish such rating subject to the Rating Agencys customary conditions.
(c) The Board of Directors may also elect to designate one or more other NRSROs as Other Rating Agencies hereunder with respect to a series of MRP Shares by notice to the Holders of such series of MRP Shares.
SECTION 7. RATING AGENCY GUIDELINES.
(a) For so long as any MRP Shares are outstanding and any Rating Agencies are then rating the MRP Shares, the Corporation will perform all actions required by the respective Rating Agency Guidelines and will not engage in any transactions proscribed by restrictions set forth in such Rating Agency Guidelines, unless it has received written confirmation from the applicable Rating Agency that such noncompliance would not adversely affect the rating then assigned by such Rating Agency to the MRP Shares.
(b) Without limiting the generality of Section 7(a), for so long as any MRP Shares are Outstanding and Fitch or any Other Rating Agency which so requires is then rating such shares, the Corporation shall deliver to each Rating Agency which is then rating MRP Shares and any other party specified in the respective Rating Agency Guidelines all certificates that are set forth in such Rating Agency Guidelines at such times and containing such information as set forth in such Rating Agency Guidelines.
(c) The Rating Agency Guidelines of any Rating Agency may be amended by such Rating Agency without the vote, consent or approval of the Corporation, the Board of Directors, any Holder of MRP Shares or any holder of Preferred Shares or Common Shares of the
-38-
Corporation. Any such amendment shall become effective for purposes of this Article Sixth if a Rating Agency publishes notice of new guidelines or upon the delivery to the Corporation of written notice setting forth such amendment.
SECTION 8. NOTICES.
All notices and communications to Holders of MRP Shares provided for hereunder, unless otherwise specified in the Bylaws or this Article Sixth or otherwise required by applicable law, shall be in writing and sent (a) by telecopy if the Corporation on the same day sends a confirming copy of such notice by an internationally recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by an internationally recognized overnight delivery service (with charges prepaid), in each case to the respective addresses of such Holders of MRP Shares appearing in the record books of the Corporation. Notices under this Section 8 will be deemed given only when actually received.
SECTION 9. WAIVER.
To the extent permitted by Maryland law, holders of a 1940 Act Majority of the outstanding Preferred Shares, acting collectively or voting separately from any other series, may by affirmative vote waive any provision hereof intended for their respective benefit in accordance with such procedures as may from time to time be established by the Board of Directors.
SECTION 10. TERMINATION.
If no MRP Shares of a particular series are Outstanding, all rights and preferences of such shares of such series established and designated hereunder shall cease and terminate, and all obligations of the Corporation under this Article Sixth shall terminate as to such series of MRP Shares.
SECTION 11. MISCELLANEOUS.
(a) No fractional shares of MRP Shares shall be issued.
(b) MRP Shares that are redeemed, exchanged or otherwise acquired by the Corporation shall return to the status of authorized and unissued shares of Preferred Stock of the Corporation without designation as to series.
(c) To the extent permitted by applicable law, the Board of Directors may interpret or adjust the provisions of this Article Sixth to resolve any inconsistency or ambiguity or to remedy any formal defect, and may amend this Article Sixth with respect to any series of MRP Shares prior to the issuance of shares of such series.
-39-
(d) References to sections, subsections, clauses, sub clauses, paragraphs and subparagraphs are to such sections, subsections, clauses, sub clauses, paragraphs and subparagraphs contained herein, unless specifically identified otherwise.
(e) The headings contained in this Article Sixth are for convenience of reference only and shall not affect the meaning or interpretation of this Article Sixth.
SECTION 12. DEFINITIONS.
As used herein, 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:
Affiliate means, at any time, and with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person. As used in this definition, Control means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an Affiliate is a reference to an Affiliate of the Corporation.
Applicable Rate means the Series E Applicable Rate for the Series E MRP Shares.
Asset Coverage Cure Date means, with respect to the failure by the Corporation to satisfy the MRP Shares Asset Coverage Test on the last day of any month, the date that is thirty (30) calendar days following such date.
Board of Directors or Board means the Board of Directors of the Corporation or any duly authorized committee thereof as permitted by applicable law.
Business Day means any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed.
Bylaws means the bylaws of the Corporation, as the same may be amended and restated from time to time.
Charter means the charter of the Corporation.
Commission means the United States Securities and Exchange Commission.
Common Shares means the shares of Common Stock, par value $.001 per share, of the Corporation.
Common Stock means common stock as defined in Article Fourth of the Charter.
-40-
Cure Date means the Asset Coverage Cure Date or the Overcollateralization Ratio Cure Date, as the case may be.
Default Period has the meaning set forth in Section 2(c)(ii) hereof.
Default Rate means, with respect to any series of the MRP Shares, for any calendar day, the Applicable Rate in effect on such day (without adjustment for any credit rating change on such series of the MRP Shares) plus 5% per annum.
Default Rate Cure Period has the meaning set forth in Section 2(c)(iii) hereof.
Delayed Redemption Date has the meaning set forth in Section 3(a)(iii) hereof.
Discounted Value means, with respect to any asset held by the Corporation as of any date, the quotient of the Market Value of such asset divided by the applicable discount factor set forth in the applicable Rating Agency Guidelines, as adjusted to take account of any diversification requirements in the applicable Rating Agency Guidelines.
Dividend Default has the meaning set forth in Section 2(c)(ii) hereof.
Dividend Payment Date means, with respect to any series of MRP Shares, the first (1st) Business Day of the month next following each Dividend Period.
Dividend Period means, with respect to any series of MRP Shares, the period beginning on and including the Original Issue Date and ending on and including the next following Quarterly Dividend Date, and each subsequent period from but excluding a Quarterly Dividend Date and ending on and including the next following Quarterly Dividend Date.
Dividend Rate has the meaning set forth in Section 2(c)(i) hereof.
Fitch means Fitch Ratings, Inc. and its successors at law.
Fitch Guidelines mean the guidelines provided by Fitch, as may be amended from time to time, in connection with Fitchs ratings then assigned on any series of the MRP Shares.
Holder means, with respect to MRP Shares, the registered holder of MRP Shares as the same appears on the share ledger or share records of the Corporation.
-41-
Make-Whole Amount for each Series E MRP Share means, with respect to any Series E MRP Share, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the MRP Liquidation Preference Amount of such Series E MRP Share over the amount of such MRP Liquidation Preference Amount, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings:
(i) Discounted Value means, with respect to the MRP Liquidation Preference Amount of any Series E MRP Share, the amount obtained by discounting all Remaining Scheduled Payments with respect to such MRP Liquidation Preference Amount from their respective scheduled due dates to the Settlement Date with respect to such MRP Liquidation Preference Amount, in accordance with accepted financial practice and at a discount factor (applied quarterly on a Quarterly Dividend Date) equal to the Reinvestment Yield with respect to such MRP Liquidation Preference Amount.
(ii) Reinvestment Yield means, with respect to the MRP Liquidation Preference Amount of any Series E MRP Share, the sum of (a) 0.50% (50 basis points) plus (b) the yield to maturity implied by the Ask Yield(s) reported as of 10:00 a.m. (New York City time) on the second Business Day preceding the Settlement Date with respect to such MRP Liquidation Preference Amount, on the display designated as Page PX1 (or such other display as may replace Page PX1) on Bloomberg Financial Markets for the most recently issued actively traded on-the-run U.S. Treasury securities (Reported) having a maturity equal to the Remaining Average Life of such MRP Liquidation Preference Amount as of such Settlement Date. If there are no such U.S. Treasury securities Reported having a maturity equal to such Remaining Average Life, then such implied yield to maturity will be determined by (i) converting U.S. Treasury bill quotations to bond equivalent yields in accordance with accepted financial practice and (ii) interpolating linearly between the Ask Yields Reported for the applicable most recently issued actively traded on-the-run U.S. Treasury securities with the maturities (1) closest to and greater than such Remaining Average Life and (2) closest to and less than such Remaining Average Life. The Reinvestment Yield shall be rounded to the number of decimal places as appears in the Dividend Rate of the applicable Series E MRP Share.
If such yields are not Reported or the yields Reported as of such time are not ascertainable (including by way of interpolation), then Reinvestment Yield means, with respect to the MRP Liquidation Preference Amount of any Series E MRP Share, the sum of (x) 0.50% (50 basis points) plus (y) the yield to maturity implied by the U.S. Treasury constant maturity yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such MRP Liquidation Preference Amount, in Federal Reserve Statistical Release H.15 (or any comparable successor publication) for the U.S. Treasury constant maturity having a term equal to the Remaining Average Life of such MRP Liquidation Preference Amount as of such Settlement Date. If there is no such U.S. Treasury constant maturity having a term equal to such Remaining Average Life, such implied yield to maturity will be determined by interpolating linearly between (1) the U.S. Treasury constant maturity so reported with the term closest to and greater than such Remaining Average Life and (2) the U.S. Treasury constant maturity so reported with the term closest to and less than such Remaining Average Life. The Reinvestment Yield shall be rounded to the number of decimal places as appears in the Dividend Rate of the applicable Series E MRP Share.
(iii) Remaining Average Life means, with respect to any MRP Liquidation Preference Amount of any Series E MRP Share, the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such MRP Liquidation Preference Amount and the scheduled due date of such Remaining Scheduled Payment.
-42-
(iv) Remaining Scheduled Payments means, with respect to the MRP Liquidation Preference Amount of any Series E MRP Share, all payments of such MRP Liquidation Preference Amount and dividends thereon at the Applicable Rate or the Default Rate (as applicable) as if they were paid on each Quarterly Dividend Payment Date after the Settlement Date with respect to such MRP Liquidation Preference Amount if no payment of such MRP Liquidation Preference Amount were made prior to the Term Redemption Date, provided that if such Settlement Date is not a Quarterly Dividend Payment Date, then the amount of the next succeeding scheduled dividend payment will be reduced by the amount of dividends accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 3.
(v) Settlement Date means, with respect to the MRP Liquidation Preference Amount of any Series E MRP Share, the date on which such Series E MRP Share is to be redeemed pursuant to Section 3.
Mandatory Redemption Date has the meaning set forth in Section 3(a)(iii) hereof.
Market Value means the market value of an asset of the Corporation determined as follows: Equity securities traded on a national or foreign securities exchange or traded over-the-counter and quoted on the NASDAQ Stock Market are valued at the last reported sale price using valuation data provided by an independent pricing service or, if there was no sale on the valuation date, then the security is valued at the mean of the bid and ask prices as obtained on that day from one or more dealers regularly making a market in that security. Fixed income securities are valued at the mean of bid and ask prices provided by an independent pricing service or broker-dealers when such prices are believed to reflect the fair market value of such securities. Such bid and ask prices are determined taking into account securities prices, yields, maturities, call features, ratings, and institutional size trading in similar securities and developments related to specific securities. Short-term investments having a maturity of 60 days or less at time of purchase are valued on an amortized cost basis, to the extent that amortized cost approximates market value. Any securities for which it is determined that market prices are unavailable or inappropriate are valued at a fair value using a procedure determined in good faith by the Board of Directors.
MGCL means the Maryland General Corporation Law.
MRP Liquidation Preference Amount means $100,000 per share.
MRP Shares has the meaning set forth in Article Fourth of the Charter.
MRP Shares Asset Coverage Test means that the asset coverage with respect to all outstanding Senior Securities and Preferred Shares, including all Outstanding MRP Shares, determined in accordance with Section 18(h) of the 1940 Act (as in effect on the first date of issuance of MRP Shares) on the basis of values calculated as of a time within 48 hours (not including Sundays or holidays) next preceding the time of such determination, is at least 225%.
-43-
MRP Shares Overcollateralization Test means, so long as Fitch or any Other Rating Agency is then rating any series of the Outstanding MRP Shares, that all required Overcollateralization Ratios are in compliance with the Applicable Rating Agency Guidelines of such Rating Agency.
1940 Act means the Investment Company Act of 1940, as amended from time to time.
1940 Act Majority has the meaning set forth in Section 4(f) hereof.
Note Purchase Agreement means the Note Purchase Agreement dated July 22, 2016, pursuant to which the Company issued its 2.76% Series A Senior Secured Notes due July 22, 2023, in an aggregate principal amount of $100,000,000 and its 3.00% Series B Senior Secured Notes due July 22, 2026 in an aggregate principal amount of $200,000,000.
Notice of Redemption has the meaning set forth in Section 3(c) hereof.
NRSRO means a nationally recognized statistical ratings organization.
Original Issue Date means, with respect to a series of MRP Shares, the original date of issue thereof. In the case of the Series E MRP Shares, the Original Issue Date is January 29, 2019.
Other Rating Agency means each NRSRO, if any, other than Fitch then providing a rating for any series of the MRP Shares pursuant to the request of the Corporation.
Other Rating Agency Guidelines means the guidelines provided by each Other Rating Agency, as may be amended from time to time, in connection with the Other Rating Agencys rating of any series of MRP Shares.
Outstanding or outstanding means, with respect to a series of MRP Shares, as of any date, the MRP Shares of such series theretofore issued by the Corporation except, without duplication, any MRP Shares of such series theretofore canceled, redeemed or repurchased by the Corporation. Notwithstanding the foregoing, (A) for purposes of voting rights (including the determination of the number of shares required to constitute a quorum), any of the MRP Shares to which the Corporation or any Affiliate of the Corporation shall be the Holder shall be disregarded and not deemed outstanding, and (B) for purposes of determining the MRP Shares Overcollateralization Test, MRP Shares held by the Corporation shall be disregarded and not deemed outstanding but shares held by any Affiliate of the Corporation shall be deemed outstanding.
Overcollateralization Ratio, means, as of any date, each ratio, calculated in accordance with the applicable Rating Agency Guidelines, of (a) the Discounted Value of the Corporations assets to (b) the aggregate liquidation preference of outstanding Preferred Shares plus certain liabilities of the Corporation.
-44-
Overcollateralization Ratio Cure Date means, with respect to the failure by the Corporation to satisfy the Overcollateralization Ratio Test as of a given Valuation Date, the date which is ten (10) Business Days following such Valuation Date.
Parity Shares shall have the meaning set forth in Section 4(f)(iii) hereof.
Paying Agent means The Bank of New York Mellon, unless and until another entity appointed by a resolution of the Board of Directors enters into an agreement with the Corporation to serve as paying agent with respect to the MRP Shares.
Person or person means and includes an individual, a corporation, a partnership, a trust, a company, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.
Preferred Shares means the shares of Preferred Stock, par value $0.001 per share, including the MRP Shares, of the Corporation from time to time.
Preferred Stock means preferred stock as defined in Article Fourth of the Charter.
Quarterly Dividend Date means the last day of each of March, June, September or December.
Rating Agency means each of Fitch (if Fitch is then rating MRP Shares) and any Other Rating Agency.
Rating Agency Guidelines mean Fitch Guidelines (if Fitch is then rating MRP Shares) and any Other Rating Agency Guidelines (if any Other Rating Agency is then rating MRP Shares), whichever is applicable.
Redemption Date means any date on which the Corporation is required to redeem any MRP Shares pursuant to the provisions of this Article Sixth, determined without regard to the Special Proviso.
Redemption Default has the meaning set forth in Section 2(c)(ii) hereof.
Restricted Payment Covenant shall have the meaning set forth in Section 4(f)(vii) hereof.
SEC means the Securities and Exchange Commission of the United States, or any successor thereto.
Securities Purchase Agreement means the Securities Purchase Agreement dated January 29, 2019, as amended from time to time, of the Corporation in respect of the MRP Shares.
-45-
Senior Securities means indebtedness for borrowed money of the Corporation including, without limitation, bank borrowings and (without duplication) other indebtedness of the Corporation within the meaning of Section 18 of the 1940 Act.
Series E Applicable Rate means 4.63% per annum, as adjusted (if applicable) in accordance with Section 2(c) hereof.
Series E MRP Shares has the meaning set forth in the first paragraph of this Article Sixth following the caption Designation.
Special Proviso shall have the meaning set forth in Section 3(a)(iii) hereof.
Term Redemption Date means April 1, 2027 for the Series E MRP Shares.
Valuation Date means every Friday, or, if such day is not a Business Day, the next preceding Business Day; provided, however, that the first Valuation Date may occur on any other date established by the Corporation; provided, further, however, that such first Valuation Date shall be not more than one week from the date on which MRP Shares initially are issued.
Voting Period shall have the meaning set forth in Section 4(b) hereof.
[Remainder of this page intentionally left blank]
-46-
SEVENTH. Bylaws. The board of directors is authorized to adopt, alter and repeal the bylaws of the Corporation, except to the extent that the bylaws provide otherwise.
EIGHTH. Board of Directors.
1. The total number of directors constituting the board of directors of the Corporation shall be three, which number may be increased from time to time in accordance with the bylaws of the Corporation but shall not be less than three. No decrease in the number of directors shall have the effect of shortening the term of any director then in office.
2. Beginning with the first annual meeting of shareholders held after the initial public offering of the shares of the Corporation (the initial annual meeting), the board of directors shall be divided into three classes: class I, class II, and class III. The terms of office of the classes of directors elected at the initial annual meeting shall expire at the times of the annual meetings of the stockholders as followsclass I in 1988, class II in 1989, and class III in 1990or thereafter in each case when their respective successors are elected and qualified. At each subsequent annual election, the directors chosen to succeed those whose terms are expiring shall be identified as being of the same class as the directors whom they succeed, and shall be elected for a term expiring at the time of the third succeeding annual meeting of stockholders, or thereafter in each case when their respective successors are elected and qualified. The number of directorships shall be apportioned among the classes so as to maintain the classes as nearly equal in number as possible.
3. Any vacancy occurring in the board of directors may be filled by a majority of the directors in office. A new directorship resulting from an increase in the number of directors shall be construed not to be a vacancy. Any director elected to fill a vacancy shall be in the same class and have the same remaining term as that of the predecessor.
4. A director may be removed with or without cause, but only by action of the shareholders taken by the holders of at least 75% of the shares then entitled to vote in an election of directors.
5. A majority of the total number of directors fixed in the bylaws shall be required to constitute a quorum at meetings of the board of directors.
NINTH. Majority votes of stockholders. Notwithstanding any provision of the laws of the State of Maryland requiring approval by the stockholders of any action by the affirmative vote of a greater proportion than a majority of the votes entitled to be cast on the matter, any such action may be taken or authorized upon the concurrence of a majority of the number of votes entitled to be cast thereon.
TENTH. Indemnification. Each person who is or was a director or officer of the Corporation, and each person who serves or served at the request of the Corporation as a director or officer of another enterprise, shall be indemnified by the Corporation in accordance with, and to the fullest extent authorized by, the Maryland General Corporation Law (MGCL) as it may be in effect from time to time, provided that this section shall not protect any director or officer of the Corporation against any liability to the Corporation or to its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or
-47-
reckless disregard of the duties involved in the conduct of his office; and provided further that this Article Tenth shall not apply as to any action, suit or proceeding brought by or on behalf of a director or officer without prior approval of the board of directors.
ELEVENTH. Liability of directors and officers. The directors and officers of the Corporation shall not be liable to the Corporation or to any of its stockholders or creditors because of any action taken by them in good faith, and in taking any such action the directors and officers shall be fully protected in relying in good faith upon the books of account of the Corporation or statements or reports prepared by any of its officials or employees or by others who they believe in good faith are qualified to make such statements or reports; provided that this sentence shall not protect any director or officer of the Corporation against any liability to the Corporation or to its stockholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
TWELFTH. Merger, sale of assets, liquidation. Notwithstanding any other provisions of the charter of the Corporation, a favorable vote of the holders of at least 75% of the shares of the Corporation then entitled to be voted on the matter shall be required to approve, adopt or authorize (i) a merger or consolidation of the Corporation with any other corporation, (ii) a sale of all or substantially all of the assets of the Corporation (other than in the regular course of its investment activities), or (iii) a liquidation or dissolution of the Corporation, unless such action has previously been approved, adopted or authorized by the affirmative vote of two-thirds of the total number of directors fixed in accordance with the bylaws.
THIRTEENTH. Conversion to open-end company. Notwithstanding any other provisions of the charter of the Corporation, at any time prior to January 1, 1992, a favorable vote of the holders of at least 75% of the shares of the Corporation entitled to be voted on the matter shall be required to approve, adopt or authorize an amendment to the charter of the Corporation that makes the common stock a redeemable security (as that term is defined in the Investment Company Act of 1940), unless such action has previously been approved, adopted or authorized by the affirmative vote of two-thirds of the total number of directors fixed in accordance with the bylaws.
FOURTEENTH. Amendment of charter. The Corporation reserves the right to amend, alter, change or repeal any provision contained in its charter, in the manner now or hereafter prescribed by statute, and any rights conferred upon the stockholders are granted subject to this reservation. Notwithstanding any other provisions of the charter of the Corporation or the bylaws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law or the charter or bylaws of the Corporation), the amendment or repeal of Article Eighth, Ninth, Tenth, Eleventh, Twelfth, Thirteenth or Fourteenth of the charter of the Corporation shall require the affirmative vote of the holders of at least 75% of the shares then entitled to be voted on the matter.
FIFTEENTH. Limitation of Liability. To the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted, no director or officer of the Corporation shall be personally liable to the Corporation or to its stockholders for money damages; provided, however, that this Article Fifteenth shall not protect any director or officer of the Corporation
-48-
against any liability to the Corporation or to its stockholders to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. No amendment of the charter of the Corporation or repeal of any of its provisions shall limit or eliminate the benefits provided to directors and officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal.
SIXTEENTH. Section 3-804(c) Election. Pursuant to Section 3-802(a)(2) of the MGCL, the Corporation elects to be subject to Section 3-804(c) of the MGCL.
[Remainder of this page intentionally left blank]
-49-
SECOND: The restatement of the charter of the Corporation as hereinabove set forth has been approved by a majority of the entire board of directors of the Corporation.
THIRD: The charter of the Corporation is not amended by these Articles of Restatement.
FOURTH: The current address of the principal office of the Corporation is as set forth in Article Third of the foregoing restatement of the charter of the Corporation.
FIFTH: The name and address of the Corporations current resident agent are as set forth in Article Third of the foregoing restatement of the charter of the Corporation.
SIXTH: The number of directors of the Corporation is currently five and the names of those directors currently in office are as follows:
Donald C. Burke
Philip R. McLoughlin
Geraldine M. McNamara
Eileen A. Moran
David J. Vitale
SEVENTH: The foregoing restatement of the charter of the Corporation shall become effective upon acceptance for record by the State Department of Assessments and Taxation of Maryland.
-50-
IN WITNESS WHEREOF, DNP Select Income Fund Inc. has caused these presents to be signed in its name and on its behalf by its President and witnessed by its Assistant Secretary on June 10, 2022.
WITNESS: | DNP SELECT INCOME FUND INC. | |||||
/s/ Daniel J. Petrisko |
By: | /s/ David D. Grumhaus, Jr. | ||||
Daniel J. Petrisko | David D. Grumhaus, Jr. | |||||
Assistant Secretary | President |
THE UNDERSIGNED, President of DNP Select Income Fund Inc., who executed on behalf of the Corporation the foregoing Articles of Restatement of which this certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles of Restatement to be the corporate act of said Corporation and hereby certifies that to the best of his knowledge, information, and belief the matters and facts set forth therein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury.
/s/ David D. Grumhaus, Jr. |
David D. Grumhaus, Jr. |
THIRTEENTH AMENDMENT AGREEMENT
TO
COMMITTED FACILITY AGREEMENT
AMENDMENT AGREEMENT (Amendment) dated as of March 30, 2021 to the Committed Facility Agreement dated March 6, 2009 (as amended, restated or supplemented from time to time, the Agreement) entered into by and between DNP Select Income Fund Inc. (Customer), on the one hand, and BNP Paribas Prime Brokerage International Limited (via assignment from BNP Paribas Prime Brokerage, Ltd., BNPP PB), on the other.
WHEREAS, the parties hereto desire to amend the Agreement as provided herein.
NOW THEREFORE, in consideration of the mutual agreements provided herein, the parties agree to amend the
Agreement as follows:
1. | Amendment to Section 1 of the Facility Agreement (Definitions) |
The definition of Maximum Commitment Financing in Section 1 of the Facility Agreement is hereby replaced in its entirety by the following:
Maximum Commitment Financing means $598,000,000 USD. Customer shall have the right to reduce the Maximum Commitment Financing upon one (1) Business Days prior written notice to BNPP PB, provided that the aggregate reduction for any calendar month shall not exceed 20% of the Maximum Commitment Financing. In addition, Customer may, subject to BNPP PBs approval, increase the Maximum Commitment Financing upon one (1) Business Days prior written notice to BNPP PB, provided that the Maximum Commitment Financing shall not exceed $598,000,000 USD (the Financing Cap).
2. | Representations |
Each party represents to the other party that all representations contained in the Agreement are true and accurate as of the date of this Amendment and that such representations are deemed to be given or repeated by each party, as the case may be, on the date of this Amendment.
3. | Miscellaneous |
a. | Definitions. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings specified for such terms in the Agreement. |
b. | Entire Agreement. This Amendment constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communications and prior writings (except as otherwise provided herein) with respect thereto. |
c. | Counterparts. This Amendment may be executed and delivered in counterparts (including by facsimile or other electonic transmission), each of which will be deemed an original. |
d. | Headings. The headings used in this Amendment are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Amendment. |
e. | Governing Law. This Amendment will be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine). |
(Signature Page Follows)
IN WITNESS WHEREOF the parties have executed this Amendment with effect from the first date specified on the first page of this Amendment.
BNP PARIBAS PRIME BROKERAGE | ||
INTERNATIONAL, LIMITED | ||
| ||
Name: |
Mohamed Adil El Batji | |
Title: |
Managing Director | |
| ||
Name: |
Robert Luzzo | |
Title: |
Managing Director | |
DNP SELECT INCOME FUND INC. | ||
| ||
Name: |
Daniel J. Petrisko | |
Title: |
Senior Vice President |
FOURTEENTH AMENDMENT AGREEMENT
TO
COMMITTED FACILITY AGREEMENT
AMENDMENT AGREEMENT (Amendment) dated as of December 1, 2022 to the Committed Facility Agreement dated March 6, 2009 (as amended, restated or supplemented from time to time, the Agreement) entered into by and between DNP Select Income Fund Inc. (Customer), on the one hand, and BNP Paribas Prime Brokerage International Limited (via assignment from BNP Paribas Prime Brokerage, Ltd., BNPP PB), on the other.
WHEREAS, the parties hereto desire to amend the Agreement as provided herein.
NOW THEREFORE, in consideration of the mutual agreements provided herein, the parties agree to amend the Agreement as follows:
1. | Amendment to the Financing Rate in Appendix B of the Agreement |
Appendix B to the Agreement is hereby amended by replacing the Customer Debit Rate of 1M LIBOR +85 bps with SOFR + 95 bps.
2. | Amendments to Definitions section of the Agreement |
Paragraph 1 of the Agreement is hereby amended to delete the definition of LIBOR in its entirety where it appears therein, reordering all other definitions as appropriate.
The following definition is hereby added to Section 1 of the Agreement in alphabetical order, reordering such other definitions as appropriate:
SOFR shall mean the daily Secured Overnight Financing Rate provided by the Federal Reserve Bank of New York, as the administrator of the benchmark, (or a successor administrator) on the Federal Reserve Bank of New Yorks Website.
3. | Representations |
Each party represents to the other party that all representations contained in the Agreement are true and accurate as of the date of this Amendment and that such representations are deemed to be given or repeated by each party, as the case may be, on the date of this Amendment.
3. | Miscellaneous |
a. | Definitions. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings specified for such terms in the Agreement. |
b. | Entire Agreement. This Amendment constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communications and prior writings (except as otherwise provided herein) with respect thereto. |
c. | Counterparts. This Amendment may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original. |
d. | Headings. The headings used in this Amendment are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Amendment. |
e. | Governing Law. This Amendment will be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine). |
Classification : Confidential
(Signature Page Follows)
Classification : Confidential
IN WITNESS WHEREOF the parties have executed this Amendment with effect from the first date specified on the first page of this Amendment.
Classification : Confidential
![]() |
![]() |
March 3, 2023
DNP SELECT INCOME FUND INC.
200 South Wacker Drive, Suite 500
Chicago, Illinois 60606
Re: | Registration Statement on Form N-2 |
Ladies and Gentlemen:
We have served as Maryland counsel to DNP Select Income Fund Inc., a Maryland corporation registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a closed-end management investment company (the Company), in connection with certain matters of Maryland law arising out of the sale and issuance from time to time (the Offering) of a maximum aggregate offering price of $126,843,417 shares (the Shares) of common stock, $0.001 par value per share, of the Company (Common Stock), covered by the above-identified Registration Statement (the Registration Statement), filed by the Company with the Securities and Exchange Commission (the Commission). This opinion is being provided at your request in connection with the filing of the Registration Statement.
In connection with our representation of the Company, and as a basis for the opinion hereinafter set forth, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents (collectively, the Documents):
1. The Registration Statement and the related form of prospectus included therein, substantially in the form transmitted to the Commission under the 1933 Act and the 1940 Act;
2. The charter of the Company (the Charter), certified as of a recent date by the State Department of Assessments and Taxation of Maryland (the SDAT);
3. The Bylaws of the Company (the Bylaws), certified as of the date hereof by an officer of the Company;
4. Resolutions (the Resolutions) adopted by the Board of Directors (the Board of Directors), or a duly authorized committee thereof, of the Company relating to the Offering, certified as of the date hereof by an officer of the Company;
5. A certificate of the SDAT as to the good standing of the Company, dated as of the date hereof; and
![]() |
500 North Capitol Street, NW Washington DC 20001-1531 Tel +1 202 756 8000 Fax +1 202 756 8087
US practice conducted through McDermott Will & Emery LLP. |
DNP Select Income Fund Inc.
March 3, 2023
Page 2
6. A certificate executed by an officer of the Company, dated as of the date hereof.
In expressing the opinion set forth below, we have assumed the following:
1. Each individual executing any of the Documents, whether on behalf of such individual or another person, is legally competent to do so.
2. Each individual executing any of the Documents on behalf of a party (other than the Company) is duly authorized to do so.
3. Each of the parties (other than the Company) executing any of the Documents has duly and validly executed and delivered each of the Documents to which such party is a signatory, and such partys (including the Companys) obligations set forth therein are legal, valid and binding.
4. All Documents submitted to us as originals are authentic. All Documents submitted to us as certified or photostatic copies conform to the original documents. All signatures on all such Documents are genuine. All public records reviewed or relied upon by us or on our behalf are true and complete. All statements and information contained in the Documents are true and complete. There has been no oral or written modification or amendment to the Documents, or waiver of any provision of the Documents, by action or omission of the parties or otherwise. Each Document submitted to us as a form will be executed by the parties thereto in the form in which it was submitted to us and in a manner consistent with the opinion stated herein.
5. Prior to the issuance of any Shares, the Company will have available for issuance, under the Charter, the requisite number of authorized but unissued shares of capital stock.
6. The issuance, and certain terms, of the Shares to be issued by the Company from time to time will be authorized and approved by the Board of Directors, or a duly authorized committee thereof, in accordance with the Maryland General Corporation Law, the Charter, the Bylaws, the Registration Statement and the Resolutions (such approvals referred to herein as the Corporate Proceedings).
Based upon the foregoing, and subject to the assumptions, limitations and qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under and by virtue of the laws of the State of Maryland and is in good standing with the SDAT.
2. Upon the completion of all Corporate Proceedings relating to the Shares, the Shares will be duly authorized and, when and if issued and delivered against payment therefor in accordance with the Registration Statement, the Resolutions and the Corporate Proceedings, the Shares will be validly issued, fully paid and nonassessable.
DNP Select Income Fund Inc.
March 3, 2023
Page 3
The foregoing opinion is limited to the laws of the State of Maryland and we do not express any opinion herein concerning any other law. We express no opinion as to the applicability or effect of the 1940 Act or other federal securities laws, or state securities laws, including the securities laws of the State of Maryland, or as to federal or state laws regarding fraudulent transfers. The opinion expressed herein is subject to the effect of judicial decisions which may permit the introduction of parol evidence to modify the terms or the interpretation of agreements.
We assume no obligation to supplement this opinion if any applicable law changes after the date hereof or if we become aware of any fact that might change the opinion expressed herein after the date hereof. This opinion is limited to the matters set forth herein, and no other opinion should be inferred beyond the matters expressly stated.
This opinion is being furnished to you for submission to the Commission as an exhibit to the Registration Statement.
We hereby consent to the filing of this opinion with the Commission as Exhibit (l) to Item 25 of the Registration Statement and to the use of the name of our firm therein. In giving this consent, we do not admit that we are within the category of persons whose consent is required by Section 7 of the Securities Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ McDermott Will & Emery LLP
MCDERMOTT WILL & EMERY LLP
Consent of Independent Registered Public Accounting Firm
We consent to the references to our firm under the captions of Financial Highlights and Independent Registered Public Accounting Firm in the Prospectus, dated March 3, 2023, and included in this Registration Statement (Form N-2) of DNP Select Income Fund Inc. (the Registration Statement).
We also consent to the incorporation by reference of our report dated December 15, 2022, with respect to the financial statements and financial highlights of DNP Select Income Fund Inc. included in the Annual Report to Shareholders (Form N-CSR/A) for the year ended October 31, 2022, into the Statement of Additional Information in this Registration Statement, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP |
Chicago, Illinois
March 3, 2023
Exhibit (s)
Calculation of Filing Fee Tables
FORM N-2
(Form Type)
DNP Select Income Fund Inc.
(Exact Name of Registrant as Specified in its Charter)
Table 1: Newly Registered and Carry Forward Securities
Table 1: Newly Registered Securities
Security Type |
Security Class Title |
Fee Calculation or Carry Forward Rule |
Amount Registered (1) |
Proposed Maximum Offering Price Per Security (1) |
Maximum Aggregate Offering Price (1) |
Fee Rate |
Amount of Registration Fee (2) |
|||||||||||||||||||||
Fees to Be Paid |
Equity | Common Stock, $0.001 par value per share | 457(o) | -- | -- | $ | 126,843,417 | .00011020 | $ | 13,978.14 | ||||||||||||||||||
Fees Previously Paid |
-- | -- | -- | -- | -- | $ | -- | -- | $ | -- | ||||||||||||||||||
Total Offering Amount | $ | 126,843,417 | $ | 13,978.14 | ||||||||||||||||||||||||
Total Fees Previously Paid | $ | -- | ||||||||||||||||||||||||||
Total Fee Offsets | $ | 13,838.62 | ||||||||||||||||||||||||||
Net Fee Due | 139.52 |
(1) | Estimated pursuant to Rule 457(o) under the Securities Act of 1933 solely for the purpose of determining the registration fee. |
(2) | The registrant is offsetting $13,838.62 of fees previously paid pursuant to Rule 457(p) |
Table 2: Fee Offset Claims and Sources
Registrant or Filer Name |
Form or Filing Type |
File Number |
Initial Filing Date |
Filing Date |
Fee Offset Claimed |
Security Type Associated with Fee Offset Claimed |
Security Title Associated with Fee Offset Claimed |
Unsold Securities Associated with Fee Offset Claimed |
Unsold Aggregate Offering Amount Associated with Fee Offset Claimed |
Fee Paid with Fee Offset Source |
||||||||||||||||||
Rule 457(p) | ||||||||||||||||||||||||||||
Fee Offset Claims |
DNP Select Income Fund Inc. |
N-2 | 333-258477 | August 5, 2021 |
$ 13,838.62 | Equity | Common Stock |
$ | 126,843,417 | |||||||||||||||||||
Fee Offset Sources |
DNP Select Income Fund Inc. |
N-2 | 333-258477 | August 5, 2021 |
$ | 13,838.62 |
Calculated pursuant to Rule 457(o) under the Securities Act, based on the Maximum Aggregate Offering Price. Pursuant to Rule Rule 457(p) under the Securities Act, the Registrant hereby offsets $13,838.62 of the total registration fee due under this Registration Statement by the amount of the filing fee associated with the unsold securities from the Registrants Registration Statement on Form N-2 (File No. 333-258477), filed on August 5, 2021 and which became automatically effective on such date, registering common stock, for a maximum aggregate offering price of $200,000,000 (the Prior Registration Statement), a portion of which remain unsold as of the filing date of this Registration Statement and are being included in this Registration Statement. The Registrant has terminated the offering under the Prior Registration Statement. Pursuant to Rule 457(p), the associated filing fee of $13,838.62 for $126,843,417 of the unsold shares of common stock remaining under the Prior Registration Statement is hereby used to offset the current registration fee due.