Edgar Filing: NEW AMERICA HIGH INCOME FUND INC

As filed with the Securities and Exchange Commission on May 23, 2003

1933 Act File No. 333-_____
1940 Act File No. 811-5399
================================================================================

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------

FORM N-2

(Check appropriate box or boxes)

/X/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / Pre-Effective Amendment No. __
/ / Post-Effective Amendment No. __
and/or
/ / REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/ Amendment No. 27

----------

THE NEW AMERICA HIGH INCOME FUND, INC.
EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER

33 Broad Street, Boston, Massachusetts 02109
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (NUMBER, STREET, CITY, STATE, ZIP CODE)

(617) 263-6400
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE

Richard E. Floor, Secretary
The New America High Income Fund, Inc.
33 Broad Street
Boston, Massachusetts 02109
NAME AND ADDRESS (NUMBER, STREET, CITY, STATE, ZIP CODE) OF AGENT FOR SERVICE

With a copy to:

Geoffrey R.T. Kenyon, Esq.
Goodwin Procter LLP
Exchange Place
Boston, Massachusetts 02109

Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.

----------

If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, as
amended ("Securities Act"), other than securities offered in connection with a
dividend reinvestment plan, check the following box. / /

----------

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT

================================================================================

PROPOSED MAXIMUM
AMOUNT BEING PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES BEING REGISTERED REGISTERED OFFERING PRICE PER SHARE PRICE REGISTRATION FEE
-----------------------------------------------------------------------------------------------------------------------------

Common Stock, $0.01 par value 23,381,095 shares $ 2.26(1) $ 52,841,275(1) $ 4,274.86

Subscription Rights 23,381,095 rights -- -- --

(1) Estimated pursuant to Rule 457(c) under the Securities Act solely for the
purpose of determining the amount of the registration fee. The registration fee
is based upon the average of the high and low prices reported for a share of
Common Stock on May 21, 2003, as reported on the New York Stock Exchange.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.

================================================================================

THE NEW AMERICA HIGH INCOME FUND, INC.

CROSS REFERENCE SHEET

Pursuant to Rule 495(a)

ITEM NUMBER OF FORM N-2 LOCATION OR HEADING IN PROSPECTUS
----------------------- ---------------------------------

PART A

1. Outside Front Cover . . . . . . . . . . . . . . . . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover Page . . . . . . . . . . . Inside Front Cover Page; Outside Back Cover Page
3. Fee Table and Synopsis . . . . . . . . . . . . . . . . . . . . Summary; Fee Table
4. Financial Highlights . . . . . . . . . . . . . . . . . . . . . Financial Information Summary
5. Plan of Distribution . . . . . . . . . . . . . . . . . . . . . Outside Front Cover Page; Summary; The Offer
6. Selling Shareholders . . . . . . . . . . . . . . . . . . . . . Not Applicable
7. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . Use of Proceeds; Investment Objective and Policies
8. General Description of the Registrant . . . . . . . . . . . . . Outside Front Cover Page; Net Asset Value and Market Price
Information; The Fund; Investment Objective and Policies;
Rating Agency Guidelines; Risk Factors and Special
Considerations; Description of Capital Stock
9. Management . . . . . . . . . . . . . . . . . . . . . . . . . . The Fund; Management of the Fund; Custodian, Auction Agent,
Registrar, Transfer Agent and Paying Agent
10. Capital Stock, Long-Term Debt, and Other Securities . . . . . . Taxation; Description of Capital Stock; Dividends and
Distributions; Dividend Reinvestment Plan; Financial
Information Summary; The Offer
11. Defaults and Arrears on Senior Securities . . . . . . . . . . . Not Applicable
12. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
13. Table of Contents of the Statement of Additional Information. . Not Applicable

PART B

14. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
15. Table of Contents . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
16. General Information and History . . . . . . . . . . . . . . . . Not Applicable
17. Investment Objective and Policies . . . . . . . . . . . . . . . The Fund; Investment Objective and Policies; Rating Agency
Guidelines; Portfolio Maturity and Turnover
18. Management . . . . . . . . . . . . . . . . . . . . . . . . . . Management of the Fund
19. Control Persons and Principal Holders of Securities . . . . . . Management of the Fund
20. Investment Advisory and Other Services . . . . . . . . . . . . The Offer; Management of the Fund; Custodian, Auction Agent,
Registrar, Transfer Agent and Paying Agent; Independent
Public Accountants
21. Brokerage Allocation and Other Practices . . . . . . . . . . . Management of the Fund; Portfolio Maturity and Turnover
22. Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . Taxation; Dividends and Distributions; Dividend Reinvestment
Plan; The Offer
23. Financial Statements . . . . . . . . . . . . . . . . . . . . . Financial Statements

PART C

Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION
DATED MAY [__], 2003

THE NEW AMERICA HIGH INCOME FUND, INC.

23,381,095 Shares of Common Stock
Issuable Upon Exercise of Transferable Rights to Subscribe for Such Shares

The New America High Income Fund, Inc. (the "Fund") is issuing transferable
rights ("Rights") to its stockholders (the "Offer"). You will receive [_____]
Right for each [_____] shares of common stock, par value $0.01, ("Common Stock")
you own on the record date, which is [_______], 2003 (the "Record Date"). These
Rights entitle you to subscribe for new shares of Common Stock to be issued by
the Fund ("Shares"). You may purchase [_____] Share for every [_____] Right you
receive. Stockholders on the record date who hold less than [_____] shares will
receive [_____] Right. Also, stockholders on the record date may purchase the
Shares not acquired by other stockholders in this rights offering, subject to
the limitations as discussed in this prospectus (the "Prospectus").

The Rights are transferable and you may sell your Rights, which will be
listed for trading on the New York Stock Exchange (the "Exchange") under the
symbol "HYB.RT" during the course of the offering. The Fund's Common Stock is
listed, and the Shares issued in this Offer will be listed, on the Exchange
under the symbol "HYB." Trading in the Rights on the Exchange may be conducted
until and including the close of trading on the last Exchange trading day prior
to _____________, 2003. On July __, 2003, the last reported net asset value
("NAV") per share of the Fund's Common Stock was [$____] and the last reported
sales price of a share on the Exchange on that date was [$____].

The subscription price per share will be the lower of: (i) ____% of the
average of the last reported sales price of a share on the Exchange on the
expiration date of the Offer and on the previous [_________] business days, and
(ii) _____% of the NAV per share as of the close of business on the expiration
date of the Offer (the "Subscription Price"). You will not know the actual
subscription price at the time you exercise your Rights. Once you subscribe for
Shares and the Fund receives payment or a guarantee of payment, you will not be
able to change your decision. THE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN TIME,
ON [_______] , 2003 (THE "EXPIRATION DATE"), UNLESS THE FUND EXTENDS THE OFFER
AS DESCRIBED IN THIS PROSPECTUS.

THE SUBSCRIPTION PRICE PER SHARE WILL BE LESS THAN THE NAV PER SHARE AT THE
EXPIRATION DATE AND, UNDER THOSE CIRCUMSTANCES, THE OFFER MAY RESULT IN A
SUBSTANTIAL DILUTION TO STOCKHOLDERS WHO DO NOT FULLY EXERCISE THEIR RIGHTS. If
you do not exercise your Rights, you will, upon the completion of the Offer, own
a smaller proportional interest in the Fund than you do now. The Fund is not yet
able to state precisely the extent of this dilution because the Fund does not
know what the NAV will be when the Offer expires, how many Rights will be
exercised or the exact expenses of the Offer. FOR FURTHER INFORMATION ON THE
EFFECTS OF DILUTION, SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS" ON PAGE ____.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

PER SHARE TOTAL(4)

ESTIMATED SUBSCRIPTION PRICE(1) $[_______] $[_______]
SALES LOAD(5) None None
ESTIMATED PROCEEDS TO THE FUND(2)(3) $[_______] $[_______]

(1) This is an estimated price. The actual Subscription Price will be
determined as set forth above on the Expiration Date.
(2) Reflects deduction of offering expenses incurred by the Fund, estimated at
[$________], and is based on the Estimated Subscription Price (as defined
below).
(3) Funds received by check prior to the final due date of this Offer will be
deposited into a segregated interest-bearing account, pending allocation
and distribution of Shares. The interest on this account will accrue to the
benefit of the Fund regardless of whether Shares are issued by the Fund.
(4) Assumes all Rights are exercised at the Estimated Subscription Price.
(5) The Fund has agreed to pay A.G. Edwards & Sons, Inc. ("A.G. Edwards") a fee
of $150,000 plus reasonable out-of-pocket expenses for financial advisory
services in connection with the Offer.

This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and should be retained
for future reference.

THE DATE OF THIS PROSPECTUS IS JULY __, 2003

ALL QUESTIONS AND INQUIRIES RELATED TO THE OFFER SHOULD BE DIRECTED TO THE
INFORMATION AGENT, THE ALTMAN GROUP, INC., TOLL FREE AT 1-800-467-0609.

PROSPECTUS SUMMARY

This summary highlights some information from this Prospectus. It may not
contain all of the information that is important to you. To understand the Offer
fully, you should read the entire Prospectus carefully, including the "Risk
Factors and Special Considerations" and "Financial Information Summary"
sections.

PURPOSE OF THE OFFER

The Fund is offering its existing stockholders the opportunity to purchase
additional Shares at a price that will be below market value without paying a
brokerage commission. The Fund's Board of Directors has determined the Offer is
in the best interests of the Fund and its stockholders. The Board of Directors
noted that an increase in the assets of the Fund would enable the Fund to take
advantage of attractive investment opportunities and that the Offer may lower
the Fund's expense ratio slightly by spreading the Fund's fixed costs over a
larger asset base. In addition, the Board noted that an increase in the number
of outstanding Shares could increase liquidity on the Exchange, where the Fund's
shares of Common Stock are traded.

The Board considered that the Offer [will] reduce the NAV of the Fund's
Common Stock and [will] have a negative impact on any stockholder who fails or
is unable to exercise his or her Rights. The Board also took note of the fact
that the possible benefits of the Offer would be reduced if expenses of the
Offer were high and few Shares were sold. Reflecting these concerns, the Board
has structured the Offer in a way that is intended to provide all stockholders
with an equal opportunity to exercise Rights and for the Fund to sell a
substantial number of Shares. In particular, the Rights will be transferable so
that non-exercising rightholders will have a chance to partially offset the
dilution they would otherwise suffer. In addition, the Board has established the
Subscription Price and the exchange ratio with a view toward providing both an
incentive to exercise Rights and an active trading market for the Rights.

THE OFFER

The Fund is issuing Rights to its stockholders. The Rights entitle you to
subscribe for Shares at the rate of [_____] Share for [_____] Right held by you
(the "Primary Subscription"). You will receive [_____] Right for each [____]
shares of Common Stock you hold on the Record Date. For example, if you own
[____]shares, you will receive [_____] Rights entitling you to purchase up to
[_____]additional Shares at the Subscription Price. You may exercise Rights at
any time from the date of this Prospectus until 5:00 p.m., Eastern time, on
[________], 2003, unless the Fund extends the Offer as described in this
Prospectus.

If you subscribe for the maximum number of Shares to which you are
entitled, you also may subscribe for Shares that other stockholders have not
otherwise subscribed for through the Primary Subscription (the
"Over-Subscription Privilege"). Shares acquired pursuant to the
Over-Subscription Privilege are subject to allotment, which is more fully
discussed below under "The Offer - Over-Subscription Privilege" on page [_].

The Subscription Price per share will be the lower of: (i) ___% of the
average of the last reported sales price of a share on the Exchange on the
expiration date of the Offer and on the previous [_________] business days, and
(ii) ___% of the NAV per share as of the close of business on the expiration
date of the Offer. You will not know the actual subscription price at the time
you exercise your Rights. Once you subscribe for Shares and the Fund receives
payment or a guarantee of payment, you will not be able to change your decision.

You may also elect to sell your Rights. The Rights are transferable until
the Expiration Date of the Offer. The Rights will be listed for trading on the
Exchange. The Fund will use its best efforts to ensure that an adequate trading
market for the Rights will exist but there is no assurance that a market for the
Rights will develop. Trading in the Rights on the Exchange may be conducted
until the close of trading on the Exchange on the last business day prior to the
Expiration Date of the Offer. Holders of fewer than 100 Rights will have the
opportunity to sell their Rights without paying brokerage commissions. See "The
Offer - Sale of Rights."

If you do not exercise your Rights, you will suffer dilution as a result of
the Offer. To avoid losing market value represented by your Rights you should
take steps to sell your Rights. See "The Offer-Sale of Rights" and "Risk Factors
and Special Considerations-Dilution." A business day is a day on which the
Exchange is open for

trading and which is not a Saturday, Sunday or other day on which banks in the
City of New York, New York are authorized or obligated by law to close.

KEY TERMS OF THE OFFER

[______], 2003 market price per share [$________]
[______], 2003 net asset value per share [$________]
Estimated Subscription Price(1) [$________]
Shares outstanding at [______], 2003 [_________]
Transferable Rights issued [_________]
Subscription ratio [_________]
Maximum number of Shares to be issued [_________]

(1) Calculated as the lower of (i) [___]% of the average of the last reported
sales price of a share on the Exchange on _________, 2003 and on the
previous [____] business days, and (ii) [___]% of the NAV per share as of
the close of business on _________, 2003.

HOW TO EXERCISE RIGHTS

- Complete, sign and date the enclosed Subscription Certificate.

- Make your check or money order for [$_____] for each Share subscribed for,
including any Shares you wish to buy using the Over-Subscription Privilege.
This payment may be more or less than the actual Subscription Price.
Additional payment may be required for the Primary Subscription Shares, and
any Over-Subscription Privilege Shares, when the actual Subscription Price
is determined.

- Registered stockholders should mail the Subscription Certificate and
payment in the enclosed envelope to EquiServe Trust Company, N.A.
("EquiServe") in a manner that will ensure receipt prior to 5:00 p.m.,
Eastern time, on [________], 2003, unless extended.

- If shares are held in a brokerage account or by a custodian bank, contact
your broker or financial adviser.

IMPORTANT DATES TO REMEMBER

EVENT DATE
----- ----

RECORD DATE [__________], 2003
RIGHTS CEASE TRADING ON THE EXCHANGE [__________], 2003 (UNLESS EXTENDED)
EXPIRATION DATE (PAYMENT FOR SHARES [__________], 2003 (UNLESS EXTENDED)
AND NOTICES OF GUARANTEED DELIVERY DUE)
DUE DATE FOR DELIVERY OF SUBSCRIPTION CERTIFICATES [__________], 2003 (UNLESS EXTENDED)
TO SUBSCRIPTION AGENT PURSUANT TO NOTICE OF
GUARANTEED DELIVERY
MAILING OF SHARES NOT LATER THAN [__________], 2003
(UNLESS EXTENDED)

STOCKHOLDER INQUIRIES SHOULD BE DIRECTED TO THE INFORMATION AGENT:
THE ALTMAN GROUP, INC.
1275 VALLEY BROOK AVENUE
LYNDHURST, NEW JERSEY 07071
TOLL FREE: 1-800-467-0609

You may exercise your Rights by completing and executing the enclosed
Subscription Certificate and mailing it, together with payment, to EquiServe,
the Subscription Agent. If you choose to exercise your Rights, you will not know
the final Subscription Price at the time of exercise. You will be required
initially to pay the estimated Subscription Price (the "Estimated Subscription
Price") of [$_____]. See "The Offer-Exercise of Rights" and "The Offer-Payment
for Shares."

THE FUND

The Fund is a diversified, closed-end management investment company with a
leveraged capital structure. The Fund's investment objective is to provide high
current income, while seeking to preserve stockholders' capital, through
investment in a professionally managed, diversified portfolio of "high-yield"
fixed-income securities, commonly known as "junk bonds." The Fund will generally
invest in securities that are rated below investment grade by recognized rating
agencies or that are non-rated. See "Investment Objective and Policies" and
"Management of the Fund-The Investment Adviser." Securities rated below
investment grade are considered by rating agencies, on balance, as predominantly
speculative with respect to their capacity to pay interest and repay principal
in accordance with the terms of the obligation and thus are generally considered
to involve greater credit risk than securities in the higher-rating categories.
The market values of the lower-quality securities tend to reflect individual
corporate developments or negative economic changes to a greater extent than
higher-quality securities. Credit ratings do not reflect this market risk. An
investment in the Fund involves a number of significant risks, which are
magnified due to the Fund's leveraged capital structure. No assurance can be
given that the Fund will achieve its investment objective. See "Risk Factors and
Special Considerations."

The Fund has had a leveraged capital structure since it began operation.
The Fund is subject to various portfolio diversification and related asset
coverage requirements under guidelines established by Moody's Investors Service,
Inc. ("Moody's") and Fitch Ratings, Inc. ("Fitch") in connection with such
rating agencies' issuance of ratings of Aaa and AAA, respectively, with respect
to the Fund's Auction Term Preferred Stock (the "ATP"). Compliance with these
guidelines limits the Fund's flexibility to invest in certain types of
securities that might otherwise be attractive investments, including private
placements. See "The Fund," "Investment Objective and Policies" and "Rating
Agency Guidelines."

If all of the Common Stock covered by the Rights is sold, the Fund expects
that the Board of Directors will authorize the Fund to issue more ATP, so that
the percentage of the Fund's assets representing leverage will be approximately
the same as prior to the sale of that Common Stock. However, there is no
assurance that it will do so. In determining whether to issue additional ATP,
the Board of Directors will consider market conditions and the availability of
appropriate securities and any other factors. As of [__________], 2003, the
Fund's leverage ratio (the ratio of the Fund's senior securities to the sum of
its net assets and its senior securities) was approximately [___]%, which would
be reduced to approximately [___]% in the event all Rights are exercised and no
additional leverage is incurred. Incurring additional leverage will reduce any
investment flexibility gained by the Fund as a result of the availability of
additional assets from the exercise of Rights pursuant to the Offer. See "The
Fund" and "Risk Factors and Special Considerations - Leverage" for discussion
of the risks and possible benefits associated with a leveraged capital
structure.

THE INVESTMENT ADVISER

T. Rowe Price Associates, Inc. ("T. Rowe Price" or "Investment Adviser"),
was selected by the Fund's Board of Directors to serve as the Fund's investment
adviser starting December 2, 2002. The Investment Adviser's principal offices
are located at 100 East Pratt Street, Baltimore, Maryland 21202, and its
telephone number is 1-410-345-2000. As of March 31, 2003, T. Rowe Price and its
affiliates managed approximately $139.9 billion of assets, including
approximately $49.9 billion of fixed income securities. "High-yield" investments
represented approximately $7.2 billion of these totals. T. Rowe Price has
provided investment advisory services to investment companies since 1937. T.
Rowe Price is not affiliated with the Fund's officers or its Board of Directors.

On October 17, 2002, the Fund's Board of Directors decided to replace the
Fund's previous investment adviser with T. Rowe Price, which is more fully
discussed below under "Management of the Fund - The Investment Adviser" on page
[___].

RISK FACTORS

An investment in the Fund is subject to a number of significant risks,
which are magnified due to the Fund's leveraged capital structure. The Fund
cannot give any assurance that it will achieve its investment objective. The NAV
and market price of the Fund's Common Stock have declined sharply at times and
may do so in the future.

Before exercising the Rights pursuant to the Offer, you should consider all
of the factors described in this Prospectus. These factors include, among
others, the risks involved in investing in lower-quality securities, the effects
of the Fund's leveraged capital structure, potential dilution of the NAV of the
Fund's Shares caused by the Offer, the negative consequences for the Fund if it
fails to meet certain asset coverage requirements, and the fact that Shares may
trade at a discount from NAV.

FEE TABLE

STOCKHOLDER TRANSACTION EXPENSES

Sales Load (as a percentage of offering price)(1)(2) None
Dividend Reinvestment and Cash Purchase Plan Fees(3) None

ANNUAL EXPENSES (as a percentage of net assets attributable to Common Stock)(4)

Investment Advisory Fee [____]%
Leverage Related Expenses [____]%
Other Expenses [____]%
Total Other Expenses(2) [____]%

Total Annual Expenses [____]%

----------
(1) The Fund has agreed to pay A.G. Edwards a fee of $150,000 plus reasonable
out-of-pocket expenses for financial advisory services in connection with
the Offer.
(2) Does not include expenses of the Fund incurred in connection with the
Offer. Such expenses are estimated at $[________]. This estimate includes
the fee payable to A.G. Edwards described above. Such expenses will be
borne by the Fund and indirectly by all of the holders of the Fund's Common
Stock, including those who do not exercise their Rights and will reduce the
Fund's NAV per share. The reduction in NAV per share caused by expenses
associated with the Offer will be increased to the extent that a
substantial number of Rightholders do not exercise their Rights.
(3) Each participant will pay a pro rata share of brokerage commissions if
shares of Common Stock are purchased by the Fund's dividend paying agent in
the open market, which occurs only when the NAV of shares of Common Stock
exceeds the market price. There is a $0.75 fee for each cash purchase under
the Fund's Cash Purchase Plan. See "Dividends and Distributions; Dividend
Reinvestment Plan."
(4) Fund expense ratios have been calculated using Fund net assets attributable
to Common Stock after giving effect to the anticipated proceeds of the
Offer. See "Management of the Fund-The Investment Adviser" for additional
information.

EXAMPLE:

CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------

An investor would pay the following expenses
on a $1,000 investment assuming a 5%
annual return throughout the periods [$__] [$__] [$__] [$__]

The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses that investors in the Fund will bear directly or
indirectly.

The Example and Fee Table should not be considered a representation of past
or future expenses or annual rates of return. Actual expenses or annual rates of
return may be greater or lesser than those assumed for purposes of the Example
and Fee Table. In addition, while the example assumes reinvestment of all
dividends and distributions at NAV, participants in the Fund's Dividend
Reinvestment Plan may receive shares purchased or issued at a price or value
different from NAV. See "Dividends and Distributions; Dividend Reinvestment
Plan."

The Example above assumes reinvestment of all dividends and other
distributions at NAV and an expense ratio based on net assets attributable to
Common Stock of __%, of which ___% is attributable to preferred stock payments
and related expenses. The tables above and the assumption in the Example of a 5%
annual return are required by Securities and Exchange Commission (the
"Commission" or the "SEC") regulations applicable to all investment companies.
Other Expenses are based on estimated amounts for the current fiscal year.

FINANCIAL INFORMATION SUMMARY

FINANCIAL HIGHLIGHTS

The following data with respect to a share of Common Stock of the Fund
outstanding during the periods indicated has been audited by the Fund's current
independent public accounts, KPMG LLP, for the fiscal year ended December 31,
2002 and by the Fund's former independent public accountants, Arthur Andersen
LLP, for the fiscal years ended December 31, 2001, 2000, 1999, 1998, 1997, 1996,
1995, 1994 and 1993, as indicated in their respective reports thereto included
with the Fund's audited financial statements herein and incorporated by
reference, and should be read in conjunction with the audited financial
statements and related notes included therein.

FOR YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------
2002(a) 2001(e) 2000 1999 1998(d) 1997(d) 1996 1995 1994(c) 1993
------- ------- ---- ---- ------- ------- ---- ---- ------- ----
(FOR EACH SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT THE PERIOD)

Net Asset Value:

Beginning of Period
------- ------- ---- ---- ------- ------- ---- ---- ------- ----
Net Investment Income

Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Contracts
------- ------- ---- ---- ------- ------- ---- ---- ------- ----
Total From Investment Operations

Distributions:

Dividends from Net Investment Income:

To preferred stockholders (including
net swap settlement
receipts/payments)

To common stockholders
------- ------- ---- ---- ------- ------- ---- ---- ------- ----
Dividends in excess of Net Investment
Income:

To common stockholders - - - - - -

Returns of Capital:

To common stockholders - - - - - - - - - -

Total Distributions

Effect of rights offering and related
expenses and Auction Term Preferred
Stock offering costs and sales load - - - - - - -
------- ------- ---- ---- ------- ------- ---- ---- ------- ----
Net Asset Value:

End of Period

Per Share Market Value:

End of Period

Total Investment Return+

Net Assets, End of Period,
Applicable to Common Stock(b)

Net Assets, End of Period, Applicable to
Preferred Stock(b)

Total Net Assets, End of Period(b)

Expense Ratios

Ratio of interest expense to Average
Net Assets** - - - - - - - -

Ratio of preferred and other debt
expenses to Average Net Assets**

Ratio of operating expenses to Average
Net Assets**

Ratio of litigation settlement expense
to Average Net Assets** - - - - - - - -
------- ------- ---- ---- ------- ------- ---- ---- ------- ----

Ratio of Total Expenses to Average
Net Assets**
======= ======= ==== ==== ======= ======= ==== ==== ======= ====

Ratio of Net Investment Income to
Average Net Assets**

Portfolio Turnover Rate

CAPITALIZATION AND INFORMATION REGARDING SENIOR SECURITIES

CAPITALIZATION. The following table sets forth the unaudited capitalization
of the Fund as of April 30, 2003.

AMOUNT OUTSTANDING
AMOUNT HELD EXCLUSIVE OF AMOUNT
BY THE FUND HELD BY THE FUND
TITLE OF CLASS AMOUNT AUTHORIZED OR FOR ITS ACCOUNT OR FOR ITS ACCOUNT
-------------- ----------------- ------------------ -------------------

Preferred Stock, $1.00 par value 1,000,000 shares -0- shares 4,000 shares

Common Stock, $0.01 par value 200,000,000 shares -0- shares 69,976,967 shares

PRO FORMA CAPITALIZATION. The following table sets forth the total assets
and liabilities of the Fund and the net assets of the Fund as of April 30, 2003
and as adjusted to give effect to the issuance of all of the Shares offered
hereby at the Estimated Subscription Price. To the extent that fewer than all of
the Rights are exercised, both the increase in net assets attributable to Common
Stock outstanding and the reduction in NAV per share of Common Stock would be
less.

ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)

Total Assets $ 260,425
Total Liabilities 10,116

Auction Term Preferred Stock
Auction Term Preferred Stock Series A, $1.00 par value, liquidation
preference $25,000 per share, 2,400 shares authorized, 1,400
shares issued and outstanding 35,000 35,000
Auction Term Preferred Stock Series B, $1.00 par value, liquidation
preference $25,000 per share, 1,600 shares authorized, 1,000
shares issued and outstanding 25,000 25,000
Auction Term Preferred Stock Series C, $1.00 par value, liquidation
preference $25,000 per share, 2,000 shares authorized, 600
shares issued and outstanding 15,000 15,000
Auction Term Preferred Stock Series D, $1.00 par value, liquidation
preference $25,000 per share, 2,400 shares authorized, 1,000
shares issued and outstanding 25,000 25,000
--------- ---------
Net Assets 150,309
========= =========

REPRESENTED BY:
Common Stock, $0.01 par value, 200,000,000 shares authorized,
69,976,967 shares issued and outstanding, [______] shares issued
and outstanding as adjusted 700
Capital in excess of par value 340,606
Accumulated net realized loss from securities transactions (180,569)
Net unrealized depreciation on investments and interest rate swaps (11,602)
Accumulated undistributed net investment income 1,174
--------- ---------
NET ASSETS: $ 150,309
=========

Net asset value per share of Common Stock $ 2.15
========= =========

SENIOR SECURITIES. The following table shows certain information regarding
senior securities of the Fund as of the dates indicated. The information has
been audited by KPMG LLP, the Fund's current independent public

accountants, for the fiscal year ended December 31, 2002, and by Arthur Andersen
LLP, the Fund's former independent public accountants, for the fiscal years
ended December 31, 2001, 2000, 1999, 1998, 1997, 1996, 1995, 1994 and 1993. In
connection with its initial public offering in February 1988, the Fund issued
senior securities consisting of $105 million aggregate principal amount of 9%
Senior Extendible Notes ("Notes") and $79 million (aggregate liquidation
preference) of Taxable Auction Rate Preferred Stock ("TARPS"), the dividends on
which were set in monthly auctions with reference to short-term interest rates.
The Fund subsequently repurchased substantial amounts of these securities and by
December 31, 1992 had $45.5 million aggregate principal amount of Notes and $35
million (aggregate liquidation preference) of TARPS outstanding. See "The Fund."
The Notes were refinanced in January 1993 with the proceeds of a credit facility
from BankBoston, N.A. (the "Credit Facility") in the aggregate principal amount
of $45.5 million. The Credit Facility was repaid and the outstanding TARPS were
redeemed in January 1994 with the proceeds from an offering of two series of
newly authorized Auction Term Preferred Stock having an aggregate liquidation
preference of $100 million plus accumulated and unpaid dividends. See
"Description of Capital Stock," "The Fund" and "Financial Statements." In May
1997 and in May 1998, two additional series of newly authorized Auction Term
Preferred Stock, with an aggregate liquidation preference of $50 and $60
million, respectively, plus accumulated and unpaid dividends were issued. In
connection with maintaining asset coverage requirements for the Auction Term
Preferred Stock, the Fund repurchased $50 million, $10 million, and $50 million
of Auction Term Preferred Stock in fiscal 2002, 2001, and 2000, respectively.

AS OF DECEMBER 31,
----------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- ---- ----

Total Amount Outstanding

Preferred Stock

Short-Term Loan

Asset Coverage

Per Preferred Stock Share(1)

Per $1,000 of Short-Term
Loan(3)

Involuntary Liquidation Preference

Preferred Stock Share(2)

Approximate Market Value:

Per Preferred Stock Share(2)

Per $1,000 of Short-Term
Loan(3)

NET ASSET VALUE AND MARKET PRICE INFORMATION

The shares of Common Stock of the Fund are listed on the Exchange. The
following table shows, for each quarterly period since the beginning of the 1993
fiscal year (i) the high and low NAVs per share of the Fund, (ii) the high and
low sale prices per share of Common Stock, as reported on the New York Stock
Exchange, and (iii) the largest premium (or, if applicable, smallest discount)
and the largest discount (or, if applicable, the smallest premium) at which the
Common Stock traded relative to the Fund's NAVs per share during the periods
indicated.

PREMIUM (DISCOUNT) AS A
NET ASSET VALUE(2) MARKET PRICE PERCENTAGE OF NET ASSET VALUE(1)
------------------ ------------ --------------------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
------------- ---- --- ---- --- ---- ---

March 31, 1993 $ 4.68 $ 4.38 $ 4.88 $ 4.00 1.9 (3.8)
June 30, 1993 4.90 4.62 4.88 4.63 4.7 (1.0)
September 30, 1993 4.93 4.87 5.13 4.75 4.6 (2.3)
December 31, 1993 5.29 4.92 5.13 4.63 (3.5) (10.7)

March 31, 1994 5.31 4.67 5.38 4.75 4.4 (1.8)
June 30, 1994 4.68 4.43 5.00 4.38 11.6 (2.3)
September 30, 1994 4.47 4.32 4.38 4.00 (0.6) (5.8)
December 31, 1994 4.31 4.09 4.13 3.88 (0.6) (8.0)

March 31, 1995 4.32 4.13 4.50 3.88 4.9 (3.6)
June 30, 1995 4.64 4.36 5.13 4.38 9.0 0.3
September 30, 1995 4.60 4.67 5.13 4.63 8.7 0.3
December 31, 1995 4.74 4.62 5.00 4.63 4.8 0.1

March 31, 1996 4.88 4.73 5.13 4.75 4.6 (1.2)
June 30, 1996 4.75 4.64 5.00 4.75 6.6 0.0
September 30, 1996 4.91 4.67 5.25 4.75 6.8 0.9
December 31, 1996 5.00 4.80 5.38 5.00 7.7 1.0

March 31, 1997 5.10 4.79 5.13 4.75 1.1 (7.8)
June 30, 1997 5.03 4.76 5.25 4.63 4.4 (2.8)
September 30, 1997 5.15 5.02 5.38 5.00 5.2 0.2
December 31, 1997 5.19 5.04 5.75 5.06 12.7 3.8

March 31, 1998 5.21 5.04 5.69 5.06 12.85 (1.63)
June 30, 1998 5.15 4.94 5.25 5.06 4.38 0.49
September 30, 1998 4.98 4.04 5.19 3.81 11.83 2.90
December 31, 1998 4.30 3.84 4.81 3.94 13.93 4.17

March 31, 1999 4.19 4.09 4.56 4.19 9.49 2.16
June 30, 1999 4.27 4.06 4.56 4.31 9.22 2.94
September 30, 1999 4.09 3.83 4.63 3.88 12.18 2.54
December 31, 1999 3.89 3.72 4.06 3.00 4.71 (19.04)

March 31, 2000 3.81 3.52 3.31 2.94 (14.77) (20.42)
June 30, 2000 3.54 3.44 3.38 2.88 (3.57) (16.55)
September 30, 2000 3.56 3.37 3.69 3.31 3.86 (3.57)
December 31, 2000 3.35 2.85 3.56 2.50 6.42 (11.02)

March 31, 2001 3.15 2.90 3.50 2.69 6.61 (1.32)
June 30, 2001 3.06 2.87 3.10 2.75 4.53 (3.03)
September 30, 2001 2.93 2.54 3.06 2.32 4.84 (4.67)
December 31, 2001 2.69 2.52 2.98 2.61 15.08 3.82

March 31, 2002 2.53 2.65 2.87 2.56 7.20 2.37
June 30, 2002 2.61 2.20 2.73 2.18 10.00 1.54
September 30, 2002 2.14 1.77 2.39 1.70 7.78 (3.65)
December 31, 2002 1.95 1.66 2.37 1.55 17.89 0.00

March 31, 2003 2.01 1.91 2.28 2.02 12.44 4.55

----------
(1) The data shown in this column generally is as of different dates than the
data appearing under "Net Asset Value" and "Market Price" and cannot be
calculated from that data.
(2) High and low NAVs per share are based on market values as of the last
business day of each week of the month.

The Fund's Common Stock has sometimes traded at a premium and sometimes at
a discount to NAV. See "Risk Factors and Special Considerations-Premium/Discount
from Net Asset Value." At the close of business on May __, 2003, and July ___,
2003 the Fund's NAVs per share of Common Stock were [$_____] and [$_____],
respectively, while the closing market prices of a share of Common Stock on the
Exchange on such dates were [$_____] and [$_____], respectively. The premiums as
a percentage of NAV on such dates were [____]% and [____]%, respectively.

THE OFFER

TERMS OF THE OFFER

The Fund is issuing to Record Date Stockholders, as of the close of
business on [_________], 2003, Rights to subscribe for the Shares. Each
Record Date Stockholder will receive [___] transferable Right for each _____
shares of Common Stock owned on the Record Date. [No fractional Rights will
be issued.] The Rights entitle the holders thereof to acquire, at the
Subscription Price, [_____] Share for every [_____] Right held. Record Date
Stockholders holding a number of shares of Common Stock that is not an
integral multiple of [______] will receive [____] additional Right. For
example, if you own [___] shares, you will receive [___] Rights entitling you
to purchase up to [____] additional Shares at the Subscription Price. In the
case of shares held of record by Cede & Co. ("Cede"), nominee for The
Depository Trust Company ("DTC"), or by any other depository or nominee,
additional Rights to be received by beneficial owners for whom Cede, or any
other depository or nominee is the holder of record, will be issued to Cede
or such other depository or nominee only if Cede or such other depository or
nominee provides to the Fund on or before the close of business on
[__________], 2003, written representation as to the number of additional
Rights required for such issuance. The Rights are evidenced by subscription
certificates ("Subscription Certificates") which will be mailed to Record
Date Stockholders, except that Subscription Certificates will not be mailed
to Record Date Stockholders whose record addresses are outside the United
States. See "Foreign Stockholders" below.

The Subscription Price of the Shares to be issued pursuant to the Rights
will be the lower of: (i) [__]% of the average of the last reported sales price
of a share on the Exchange on the expiration date of the Offer and on the
previous [_________] business days, and (ii) [__]% of the NAV per share as of
the close of business on the expiration date of the Offer. A business day is a
day on which the Exchange is open for trading and which is not a Saturday,
Sunday or other day on which banks in the City of New York, New York are
authorized or obligated by law to close. Exercising Rightholders, including both
Rightholders purchasing Shares in the Primary Subscription and those who
purchase Shares pursuant to the Over-Subscription Privilege (collectively,
"Exercising Rightholders"), will not know the actual Subscription Price at the
time of exercise and will be required initially to pay for the Shares at the
Estimated Subscription Price of [$_____] per Share. The actual Subscription
Price may be more than the Estimated Subscription Price. Exercising Rightholders
will have no right to rescind a purchase after receipt by the Subscription Agent
of their payment for Shares.

The Fund announced its intention to make the Offer after the close of
trading on the Exchange on May [ ], 2003. The NAVs per share of Common Stock at
the close of business on May [ ], 2003 and July [ ], 2003 were [$_____] and
[$_____], respectively, and the closing market prices per share of Common Stock
on the Exchange on those dates were [$_____] and [$_____], respectively.

Completed Subscription Certificates may be delivered to the Subscription
Agent at any time during the Subscription Period, which commences on the date of
this Prospectus and ends at 5:00 p.m., Eastern time, on [__________], 2003,
unless extended by the Fund until a time not later than 5:00 p.m., Eastern time,
on [__________], 2003. See "Expiration of the Offer" below. All Rightholders may
purchase Shares in the Primary Subscription. All Rights may be exercised
immediately upon receipt and until 5:00 p.m. on the Expiration Date.

Any rightholder who fully exercises all Rights held by such Rightholder in
the Primary Subscription is entitled to subscribe for Shares which were not
otherwise subscribed for in the Primary Subscription pursuant to the
Over-Subscription Privilege. Shares acquired pursuant to the Over-Subscription
Privilege may be subject to allotment, which is more fully discussed below in
"Over-Subscription Privilege."

Rights may be exercised by completing the Subscription Certificate and
delivering it, together with payment, to the Subscription Agent. The method by
which Rights may be exercised and Shares paid for is set forth below in
"Exercise of Rights" and "Payment for Shares." Interest will accrue to the
benefit of the Fund on payments received by the Subscription Agent prior to the
Expiration Date. An Exercising Rightholder will have no right to rescind a
purchase after the Subscription Agent has received payment. See "Payment for
Shares" below. Shares issued pursuant to an exercise of Rights will be listed on
the Exchange.

The Rights are transferable until the Expiration Date and will be admitted
for trading on the Exchange. Assuming a market for the Rights exists, the Rights
may be purchased and sold through usual brokerage channels, or delivered on or
before [__________], 2003 (or, if the Offer is extended, until two business days
prior to the Expiration Date), to the Subscription Agent, for sale through A.G.
Edwards. Although no assurance can be given that a market for the Rights will
develop, if such a market does develop on the Exchange, trading in the Rights on
the Exchange may be conducted until and including the close of trading on the
last Exchange trading day prior to the Expiration Date. The method by which the
Rights may be transferred is set forth below in "Sale of Rights."

There is no minimum number of Rights that must be exercised in order for
the Offer to close.

The Fund believes that the distribution to Record Date Stockholders of
transferable Rights, which themselves may have realizable value, will afford
nonparticipating Record Date Stockholders the potential to receive a cash
payment upon sale of such Rights. Stockholders who do not exercise their Rights
in full will suffer a greater level of dilution of their interest in the Fund
than stockholders who do. See "Risk Factors and Special Considerations-Dilution
and Other Investment Considerations."

The first regular monthly dividend to be paid on shares of Common Stock
acquired upon exercise of Rights will be the first monthly dividend, the record
date for which occurs after the issuance of such shares following the Expiration
Date. It is the Fund's present policy to pay dividends on the last business day
of each month to stockholders of record fourteen days prior to the payment date.
Assuming that the Subscription Period is not extended beyond [__________], 2003,
it is expected that the first dividend received by Rightholders acquiring shares
pursuant to the Offer will be paid on the last business day of [__________],
2003. See "Dividends and Distributions; Dividend Reinvestment Plan."

Participants in the Fund's Dividend Reinvestment Plan (the "Plan") will be
issued Rights for the shares of Common Stock held in their accounts in the Plan
as of the Record Date. Participants wishing to exercise such Rights must
exercise such Rights in accordance with the procedures set forth below in
"Exercise of Rights" and "Payment for Shares" below. Such Rights will not be
exercised automatically by the Plan.

For purposes of determining whether a stockholder has fully exercised such
stockholder's Rights and for purposes of allotment, shares of Common Stock and
Rights held of record by Cede, nominee for DTC, or any other depository or
nominee will be deemed to be held by the broker-dealer on whose behalf they are
held (or, if there is no broker-dealer, by the stockholder on whose behalf they
are held).

PURPOSE OF THE OFFER

The Fund is seeking through the Offer to allow existing stockholders of the
Fund an opportunity to purchase additional Shares at a price that will be below
market value without paying a brokerage commission. The Board of Directors of
the Fund has determined that it would be in the best interest of the Fund and
its stockholders to increase the assets of the Fund available for investment. In
reaching its decision, the Board of Directors concluded that an increase in the
assets of the Fund would enable the Fund to take advantage of investment
opportunities. The Board also concluded that an increase in the assets of the
Fund through a well-subscribed Offer could tend to reduce the Fund's expense
ratio in the future, after the expenses associated with the Offer have been
recouped. The Board observed that a lower expense ratio, if achieved, would be
of long-term benefit to holders of Common Stock, although no assurance can be
given that the Fund will in fact achieve lower expenses in the future as the
Fund cannot predict with certainty its expenses over time. See "The Fund" and
"Description of Capital Stock-Asset Maintenance." The Board considered that a
well-subscribed Offer could also tend to increase liquidity on the Exchange,
where the Fund's shares of Common Stock are traded, by increasing the number of
outstanding shares.

In considering the Offer, the Board considered that the Offer [will] reduce
the NAV of the Fund's Common Stock and will adversely affect any holder of
Common Stock who fails or is unable to exercise his or her Rights. The Board
also took note of the fact that the possible beneficial effects of the Offer
would be reduced to the extent expenses associated with the Offer were high and
the Offer was not well subscribed.

Reflecting the foregoing considerations, the Board has established the
terms of the Offer on a basis that is intended to provide all existing
stockholders with an equal opportunity to exercise Rights and to achieve full or
substantial subscription. The Board has specified that Rights will be
transferable in order to give non-exercising Rightholders an opportunity to
receive partial compensation for the dilution they will suffer through
non-exercise by selling their Rights, and has established the Subscription Price
and the exchange ratio with a view toward providing both an incentive to
exercise Rights and an opportunity to obtain value for the sale of Rights. In
this regard, the Board has noted that an existing stockholder who seeks to
maintain rather than increase his or her investment in the Fund may, in lieu of
selling Rights, sell a portion of his or her shares of the Fund sufficient to
provide, after expenses including commissions, funds for the exercise of Rights.
The Board has also sought to reduce costs associated with the Offer by, among
other things, engaging an information agent rather than paying commissions to a
broker or a dealer-manager, and has sought to facilitate, through its
arrangements with A.G. Edwards, the existence of an adequate trading market for
Rightholders who do not exercise their Rights.

There can, of course, be no assurance that the Offer will be successful or
that the objectives sought by the Board will be achieved, as in the case of any
rights offer. However, following analysis and discussion of the Offer and
consideration of its terms at a series of meetings, the Board of Directors has
determined that the Offer, if successful, would result in a net benefit to
existing stockholders. The Offer was approved unanimously by all the Directors,
present and voting at a meeting of the Board of Directors at which a quorum was
present and acting throughout, and by all of the Directors who are not
"interested persons" of the Fund. None of the Fund's officers or members of its
Board of Directors is affiliated with the Investment Adviser. It should be
noted that the Investment Adviser will benefit from the Offer because its fee
is based on the Fund's average weekly NAV, which will increase as a result of
the issuance of Shares in connection with the Offer. The benefit to the
Investment Adviser was not a material element of the Board's deliberations.

If all of the Common Stock covered by the Rights is sold, the Fund expects
that the Board of Directors will authorize the Fund to issue more ATP, so that
the percentage of the Fund's assets representing leverage will be approximately
the same as prior to the sale of that Common Stock. As of [_________], 2003, the
Fund's leverage ratio (the ratio of the Fund's total senior securities to the
sum of its total net assets and its senior securities) was approximately [___]%,
which would be reduced to approximately [___]% in the event all Rights are
exercised and no additional leverage is incurred. Incurring additional leverage
will reduce any investment flexibility gained by the Fund as a result of the
availability of additional assets from the exercise of Rights pursuant to the
Offer. See "The Fund" and "Risk Factors and Special Considerations--Leverage"
for discussion of the risks and possible benefits associated with a leveraged
capital structure.

The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and on
terms that may or may not be similar to this Offer. Any such further rights
offering will be made in accordance with the Investment Company Act of 1940, as
amended, (the "1940 Act").

EXPIRATION OF THE OFFER

The Offer will expire at 5:00 p.m., Eastern time, on [__________], 2003,
unless extended by the Fund until a time not later than 5:00 p.m., Eastern time,
on [__________], 2003. Rights will expire on the Expiration Date and may not be
exercised thereafter.

SUBSCRIPTION AGENT

The Subscription Agent is EquiServe [P.O. Box 43025, Providence, Rhode
Island 02940-3025], which will receive, for its administrative, processing,
invoicing and other services as subscription agent, a fee estimated to be
[$______], and reimbursement for all out-of-pocket expenses related to the
Offer. The Subscription Agent is also the Fund's Transfer Agent, Registrar and
Dividend Paying Agent with respect to the Common Stock. Questions regarding the
Subscription Certificates should be directed to EquiServe, Corporate Actions,
P.O. Box 43025, Providence, Rhode Island 02940-3025 (telephone 1-800-426-5523).
SIGNED SUBSCRIPTION CERTIFICATES SHOULD BE SENT TO EQUISERVE by one of the
methods described below. The Fund reserves the right to accept Subscription
Certificates actually received on a timely basis at any of the addresses listed.

(1) BY FIRST CLASS MAIL:

EquiServe
Corporate Actions
P.O. Box 43025
Providence, Rhode Island 02940-3025

(2) BY EXPRESS MAIL OR OVERNIGHT COURIER:

EquiServe
Corporate Actions
40 Campanelli Drive
Braintree, Massachusetts 02170

(3) BY HAND:

Securities Transfer and Reporting Services, Inc.
c/o EquiServe
100 Williams St. Galleria
New York, New York 10038

DELIVERY TO AN ADDRESS OTHER THAN THE ABOVE DOES NOT CONSTITUTE GOOD DELIVERY.

INFORMATION AGENT

Any questions or requests for assistance may be directed to the Information
Agent at its telephone number and address listed below:

THE INFORMATION AGENT FOR THE OFFER IS:

The Altman Group, Inc.
1275 Valley Brook Avenue
Lyndhurst, New Jersey 07071
Toll Free: 1-800-467-0609

The Information Agent will receive a fee estimated to be $7,500 and
reimbursement for out-of-pocket expenses related to the Offer.

Stockholders may also contact their brokers or nominees for information
with respect to the Offer.

EXERCISE OF RIGHTS

Rights may be exercised by filling in and signing the Subscription
Certificate and mailing it in the envelope provided, or otherwise delivering the
completed and signed Subscription Certificate to the Subscription Agent,
together with payment for the Shares as described below under "Payment for
Shares." Rightholders may also exercise Rights by contacting a broker, bank or
trust company who can arrange, on behalf of the Rightholder, to guarantee
delivery of payment and of a properly completed and executed Subscription
Certificate. A fee may be charged for this service. Completed Subscription
Certificates and full payment for the Shares subscribed for must be received by
the Subscription Agent prior to 5:00 p.m., Eastern time, on the Expiration Date
(unless payment is effected by means of a notice of guaranteed delivery as
described below under "Payment for Shares") at one of the offices of the
Subscription Agent at the addresses set forth above.

Qualified Financial Institutions that hold shares of Common Stock as
nominee for the account of others should notify the respective beneficial owners
of such shares as soon as possible to ascertain such beneficial owners'
intentions and to obtain instructions with respect to the Rights. For purposes
of this Prospectus, "Qualified Financial Institution" shall mean a registered
broker-dealer, commercial bank or trust company, securities depository or
participant therein, or nominee thereof. If the beneficial owner so instructs,
the nominee should complete the Subscription Certificate and submit it to the
Subscription Agent with the proper payment. In addition, beneficial owners of
Common Stock or Rights held through such a nominee should contact the nominee
and request the nominee to effect transactions in accordance with the beneficial
owners' instructions.

Stockholders who are registered holders can choose between either option
set forth under "Payment for Shares" below.

OVER-SUBSCRIPTION PRIVILEGE

If Rightholders do not exercise all of the Rights held by them on Primary
Subscription, any Shares for which subscriptions have not been received (the
"Excess Shares") will be offered by means of the Over-Subscription Privilege to
those Rightholders (including those Rightholders who acquired their Rights
during the Subscription Period) who have exercised all the Rights held by them
on Primary Subscription and who wish to acquire more than the number of Shares
for which the Rights held by them are exercisable. Rightholders who exercise on
Primary Subscription all of the Rights held by them will be asked to indicate on
their Subscription Certificates how many Shares they would desire to purchase
pursuant to the Over-Subscription Privilege. If sufficient Excess Shares remain
as a result of unexercised Rights, all over-subscriptions will be honored in
full. If sufficient Excess Shares are not available to honor all
over-subscriptions, the available Shares will be allocated first among
Rightholders who subscribe for an aggregate of 1,000 or fewer Shares (inclusive
of Shares subscribed for by such Rightholders in the Primary Subscription).
Shares remaining thereafter will be allocated among those who over-subscribe
based on the number of Rights originally exercised by them in the Primary
Subscription. The percentage of Excess Shares each over-subscribing Exercising
Rightholder may acquire may be rounded up or down to result in delivery of whole
Shares. The allocation process may involve a series of allocations in order to
assure that the total number of Shares available for over-subscriptions is
distributed on a pro rata basis. Each Rightholder is required to purchase all
allocated Over-Subscription Shares requested on the Subscription Certificate.

The Fund will not otherwise offer or sell any Shares that are not
subscribed for pursuant to the Primary Subscription or the Over-Subscription
Privilege pursuant to the Offer.

Qualified Financial Institutions and other nominee holders of Rights will
be required to certify to the Subscription Agent, before any Over-Subscription
Privilege may be exercised as to any particular beneficial owner, as to the
aggregate number of Rights exercised pursuant to the Primary Subscription and
the number of Shares subscribed for pursuant to the Over-Subscription Privilege
by such beneficial owner and that such beneficial owner's Primary Subscription
was exercised in full.

PAYMENT FOR SHARES

Exercising Rightholders who acquire Shares on Primary Subscription or
pursuant to the Over-Subscription Privilege may choose between the following
methods of payment:

(1) An exercising Rightholder may send the Subscription
Certificate, together with payment for the Shares acquired on Primary
Subscription and for any additional Shares subscribed for pursuant to the
Over-Subscription Privilege, to the Subscription Agent, calculating the
total payment on the basis of the Estimated Subscription Price of [$_____]
per Share. To be accepted, such payment, together with the properly
completed and executed Subscription Certificate, must be received by the
Subscription Agent at one of the Subscription Agent's offices at the
addresses set forth above, prior to 5:00 p.m., Eastern time, on the
Expiration Date. Exercise of the Rights by this method is subject to actual
collection of checks by 5:00 p.m. on the third business day after the
Expiration Date. The Subscription Agent will deposit all share purchase
checks and any orders received by it prior to the final payment date into a
segregated interest bearing account pending proration and distribution of
Shares or return of funds. All interest earned on such funds will accrue to
the benefit of the Fund. A PAYMENT PURSUANT TO THIS METHOD MUST BE IN
UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN
THE UNITED STATES, MUST BE PAYABLE TO THE NEW AMERICA HIGH INCOME FUND,
INC. AND MUST ACCOMPANY A PROPERLY COMPLETED AND EXECUTED SUBSCRIPTION
CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.

THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE
EXERCISING RIGHTHOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH

CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE
ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT PRIOR TO 5:00 P.M.,
EASTERN TIME, ON THE EXPIRATION DATE AND CLEARANCE OF PAYMENT PRIOR TO 5:00
P.M., EASTERN TIME, ON THE THIRD BUSINESS DAY AFTER THE EXPIRATION DATE.
BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE FIVE BUSINESS DAYS OR MORE TO
CLEAR, RIGHTHOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY
MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.

(2) Alternatively, a subscription will be accepted by the
Subscription Agent if, prior to 5:00 p.m., Eastern time, on the Expiration
Date, the Subscription Agent has received a notice of guaranteed delivery
by facsimile (telecopy) or otherwise from an Exchange member, a bank, a
trust company, or other financial institution that is a member of the
Securities Transfer Agents Medallion Program, the Stock Exchange Medallion
Program or the New York Stock Exchange Medallion Signature Program,
guaranteeing delivery of (i) payment of the full Subscription Price for the
Shares subscribed for on Primary Subscription and any additional Shares
subscribed for pursuant to the Over-Subscription Privilege, and (ii) a
properly completed and executed Subscription Certificate, and, if
applicable, a Nominee Holder Over-Subscription Form. The Subscription Agent
will not honor a notice of guaranteed delivery if a properly completed and
executed Subscription Certificate together with full payment is not
received by the Subscription Agent by the close of business on the third
business day after the Expiration Date.

On or before the seventh business day after the Expiration Date (the
"Confirmation Date"), the Subscription Agent will send to each Exercising
Rightholder (or, if shares are held by Cede or any other depository or nominee,
to Cede or such other depository or nominee), a confirmation showing (i) the
number of Shares purchased pursuant to the Primary Subscription and, if
applicable, the Over-Subscription Privilege, (ii) the per Share and total
purchase price for the Shares, (iii) any excess to be refunded by the Fund to
such Rightholder as a result of payment for Shares pursuant to the
Over-Subscription Privilege that the Rightholder is not acquiring and (iv) any
additional amount payable by such Rightholder to the Fund or any excess to be
refunded by the Fund to such Rightholder, in each case, based on the actual
Subscription Price as determined on the Expiration Date. Any additional payment
required from Rightholders must be received by the Subscription Agent within
seven business days after the Confirmation Date. Any excess payment to be
refunded by the Fund to a Rightholder will be mailed by the Subscription Agent
as promptly as practicable. AN EXERCISING RIGHTHOLDER WILL HAVE NO RIGHT TO
RESCIND A PURCHASE AFTER THE SUBSCRIPTION AGENT HAS RECEIVED PAYMENT, EITHER BY
MEANS OF A NOTICE OF GUARANTEED DELIVERY OR A CHECK. SEE "DELIVERY OF SHARE
CERTIFICATES" BELOW.

WHICHEVER OF THE TWO METHODS DESCRIBED ABOVE IS USED, ISSUANCE OF THE
SHARES PURCHASED IS SUBJECT TO COLLECTION OF CHECKS AND ACTUAL FULL PAYMENT. IF
A RIGHTHOLDER WHO SUBSCRIBES FOR SHARES PURSUANT TO THE PRIMARY SUBSCRIPTION OR
OVER-SUBSCRIPTION PRIVILEGE DOES NOT MAKE PAYMENT OF ANY AMOUNTS DUE, THE
SUBSCRIPTION AGENT RESERVES THE RIGHT TO TAKE ANY OR ALL OF THE FOLLOWING
ACTIONS: (i) FIND OTHER STOCKHOLDERS FOR SUCH SUBSCRIBED AND UNPAID FOR SHARES;
(ii) APPLY ANY PAYMENT ACTUALLY RECEIVED BY IT TOWARD THE PURCHASE OF THE
GREATEST WHOLE NUMBER OF SHARES WHICH COULD BE ACQUIRED BY SUCH HOLDER UPON
EXERCISE OF THE PRIMARY SUBSCRIPTION AND/OR OVER-SUBSCRIPTION PRIVILEGE, AND/OR
(iii) EXERCISE ANY AND ALL OTHER RIGHTS OR REMEDIES TO WHICH IT MAY BE ENTITLED,
INCLUDING, WITHOUT LIMITATION, THE RIGHT TO SET OFF AGAINST PAYMENTS ACTUALLY
RECEIVED BY IT WITH RESPECT TO SUCH SUBSCRIBED SHARES.

All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Subscription Agent, whose
determinations will be final and binding. The Subscription Agent, in its sole
discretion, may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or reject the
purported exercise of any Right. Subscriptions will not be deemed to have been
received or accepted until all irregularities have been waived or cured within
such time as the Subscription Agent determines in its sole discretion. The
Subscription Agent will not be under any duty to give notification of any defect
or irregularity in connection with the submission of Subscription Certificates
or incur any liability for failure to give such notification.

SALE OF RIGHTS

SALES THROUGH SUBSCRIPTION AGENT. Rightholders who do not wish to exercise
any or all of their Rights may instruct the Subscription Agent to sell any
unexercised Rights. Subscription Certificates representing the Rights to be sold
by the Subscription Agent must be received by the Subscription Agent prior to
[__________], 2003 (or if the Offer is extended, until two business days prior
to the Expiration Date). Upon the timely receipt by the Subscription Agent of
appropriate instructions to sell Rights, the Subscription Agent will use its
reasonable best efforts to complete the sale; and the Subscription Agent will
remit the proceeds of sale, net of any commissions, to the Rightholders. No
brokerage commissions will be charged to holders in connection with any sale of
fewer than 100 Rights who elect to direct the Subscription Agent to sell such
Rights in whole but not in part. Any commission on sales of 100 Rights or more
will be paid by the selling Rightholders. If the Rights can be sold, sales of
such Rights will be deemed to have been effected at the weighted-average price
received by the Subscription Agent on the day such Rights are sold. The
Subscription Agent will also attempt to sell all Rights which remain unclaimed
as a result of Subscription Certificates being returned by the postal
authorities to the Subscription Agent as undeliverable as of the fourth business
day prior to the Expiration Date. Such sales will be made net of commissions on
behalf of the nonclaiming stockholders. The Subscription Agent will hold the
proceeds from those sales for the benefit of such nonclaiming stockholders until
such proceeds are either claimed or become subject to escheat. There can be no
assurance that the Subscription Agent will be able to complete the sale of any
such Rights, and neither the Fund nor the Subscription Agent has guaranteed any
minimum sales price for the Rights. All such Rights will be sold at the market
price, if any, on the Exchange.

OTHER TRANSFERS. The Rights are transferable on the Exchange until the
close of business on the last business day prior to the Expiration Date. The
Rights evidenced by a single Subscription Certificate may be transferred in
whole or in part by delivering to the Subscription Agent a Subscription
Certificate properly endorsed for transfer, with instructions to register such
portion of the Rights evidenced thereby in the name of the transferee and to
issue a new Subscription Certificate to the transferee evidencing such
transferred Rights. In such event, a new Subscription Certificate evidencing the
balance of the Rights will be issued to the transferring Rightholder or, if the
transferring Rightholder so instructs, to an additional transferee.

Except for the fees charged by the Subscription Agent and brokerage
commissions on the sale of fewer than 100 Rights (which will be paid by the Fund
as described above), all commissions, fees and other expenses (including
brokerage commissions and transfer taxes) incurred in connection with the
purchase, sale or exercise of Rights will be for the account of the transferor
of the Rights and none of such commissions, fees or expenses will be paid by the
Fund or the Subscription Agent.

The Fund anticipates that the Rights will be eligible for transfer through,
and that the exercise of the Primary Subscription and the Over-Subscription
Privilege may be effected through, the facilities of DTC.

FINANCIAL ADVISOR

A.G. Edwards & Sons, Inc., a nationally recognized investment banking and
securities firm, has been retained by the Fund to provide financial advisory
services in connection with the Offer. The Fund has agreed to pay A.G. Edwards a
fee for its advisory services in an amount equal to $150,000 plus reasonable
out-of-pocket expenses.

DELIVERY OF SHARE CERTIFICATES

Participants in the Fund's Dividend Reinvestment Plan will have any Shares
acquired with respect to Shares held in their stockholder dividend reinvestment
accounts in the Plan on Primary Subscription and pursuant to the
Over-Subscription Privilege credited to such accounts. Stockholders whose Shares
are held of record by Cede or by any other depository or nominee on their behalf
or their broker-dealers' behalf will have any Shares acquired on Primary
Subscription and pursuant to the Over-Subscription Privilege credited to the
account of Cede or such other depository or nominee. With respect to all other
stockholders, certificates for all Shares acquired on Primary Subscription and
pursuant to the Over-Subscription Privilege will be mailed within nine business
days after the Confirmation Date and after full payment for the Shares
subscribed for has been received and cleared, which clearance may take up to
fifteen days from the date of receipt of the payment.

FOREIGN STOCKHOLDERS

Subscription Certificates will not be mailed to Record Date Stockholders
whose record addresses are outside the United States (the term "United States"
includes the states, the District of Columbia, and the territories and
possessions of the United States) ("Foreign Record Date Stockholders"). The
Rights to which such Subscription Certificates relate will be held by the
Subscription Agent for such Foreign Record Date Stockholders' accounts until
instructions are received to exercise, sell or transfer the Rights. If no
instructions have been received by 12:00 noon, Eastern time, three business days
prior to the Expiration Date regarding the Rights of those Foreign Record Date
Stockholders, the Subscription Agent will use its reasonable best efforts to
sell the Rights of those Foreign Record Date Stockholders on the Exchange. The
net proceeds, if any, from the sale of those Rights will be remitted to the
Foreign Record Date Stockholders.

FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER

The U.S. federal income tax consequences to holders of Common Stock with
respect to the Offer will be as follows:

1. The distribution of Rights to Record Date Stockholders will
not result in taxable income to such holders nor will such holders realize
taxable income as a result of the exercise of the Rights.

2. The basis of a Right will be (a) to a holder of Common Stock
to whom it is issued and who exercises or sells the Right (i) if the fair
market value of the Right immediately after issuance is less than 15% of
the fair market value of the Common Stock with regard to which it is
issued, zero (unless the holder elects, by filing a statement with his
timely filed federal income tax return for the year in which the Rights are
received, to allocate the basis of the Common Stock between the Right and
the Common Stock based on their respective fair market values immediately
after the Right is issued), and (ii) if the fair market value of the Right
immediately after issuance is 15% or more of the fair market value of the
Common Stock with regard to which it is issued, a portion of the basis in
the Common Stock based upon the respective fair market values of the common
stock and the Right immediately after the Right is issued; (b) to a holder
of Common Stock to whom it is issued and who allows the Right to expire,
zero; and (c) to anyone who purchases a Right in the market, the purchase
price for a Right.

3. The holding period of a Right received by a Record Date
Stockholder includes the holding period of the Common Stock with regard to
which the Right is issued.

4. Any gain or loss on the sale of a Right will be treated as a
capital gain or loss if the Right is a capital asset in the hands of the
seller. Such a capital gain or loss will be long- or short- term, depending
on how long the Right has been held, in accordance with paragraph 3 above.
A Right issued with regard to Common Stock will be a capital asset in the
hands of the person to whom it is issued if the Common Stock was a capital
asset in the hands of that person. If a Right is allowed to expire, there
will be no loss realized unless the Right had been acquired by purchase, in
which case there will be a loss equal to the basis of the Right.

5. If the Right is exercised by the Record Date Stockholder, the
basis of the Common Stock received will include the basis, if any,
allocated to the Right and the amount paid upon exercise of the Right.

6. If the Right is exercised, the holding period of the Common
Stock acquired begins on the date the Right is exercised.

The Fund is required to withhold and remit to the U.S. Treasury at a
current rate of 28% on reportable payments paid on an account if the holder of
the account provides the Fund with either an incorrect taxpayer identification
number or no number at all or fails to certify that the taxpayer is not subject
to such withholding.

The foregoing is only a summary of applicable federal income tax laws and
does not include any state or local tax consequences of the Offer. Rightholders
should consult their own tax advisers concerning the tax consequences of this
transaction. See "Taxation."

CONSIDERATIONS FOR CERTAIN TAX-DEFERRAL ARRANGEMENTS AND EMPLOYEE PLANS

Special considerations apply with respect to Record Date Stockholders that
are tax-deferral arrangements such as plans qualified under Section 401(a) of
the Internal Revenue Service Code of 1986, as amended ("Code") (including
corporate savings and 401(k) plans and Keogh plans of self-employed
individuals), individual retirement accounts under Section 408(a) of the Code
("IRAs"), Roth IRA's under section 408A of the Code, and custodial accounts
under Section 403(b) of the Code (collectively, "Plans"). For example,
additional contributions to a Plan (other than permitted rollover contributions
or trustee-to-trustee transfers from other Plans) in order to exercise Rights,
when taken together with other contributions made to the Plan, may exceed limits
under the Code, resulting in (among other things) excise taxes for excess or
nondeductible contributions or the Plan's loss of its tax-favored status.
Furthermore, the sale or transfer of Rights may be treated as a distribution or
result in other adverse tax consequences.

Plans and other tax exempt entities should also be aware that if they
borrow in order to finance their exercise of Rights, they may become subject to
the tax on unrelated business taxable income ("UBTI") under Section 511 of the
Code. If any portion of an IRA or Roth IRA is used as security for a loan, the
portion so used is also treated as distributed to the IRA or Roth IRA depositor,
which may result in current income taxation and penalty taxes.

Certain Plans may be subject to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), which is a broad statutory framework that governs
most employer-maintained retirement plans ("ERISA Plans") and imposes certain
fiduciary obligations on the persons who manage such plans ("Fiduciaries"). In
determining whether to exercise or transfer Rights, Fiduciaries of Record Date
Stockholders that are ERISA Plans must determine that such actions are
consistent with their fiduciary duties under ERISA and do not result in
transactions which are prohibited under Section 406 of ERISA. Further, Record
Date Stockholders which are Plans that are subject to Section 4975 of the Code
must determine that the exercise or transfer of Rights does not result in
transactions which are prohibited and subject to excise taxes under Section 4975
(under rules which generally parallel the prohibited transaction provisions of
Section 406 of ERISA). Employee benefit plans that are not ERISA Plans (such as
governmental plans) may be subject to state law restrictions that could affect
the decision to exercise or transfer Rights.

The Fund is an investment company registered under the 1940 Act, and
intends to continue to qualify as such. Therefore, under ERISA, the assets of an
ERISA Plan which is a stockholder of the Fund will include only the equity
interest owned by such ERISA Plan and not the underlying assets of the Fund. The
Investment Adviser will therefore not be a Fiduciary with respect to
stockholders which are ERISA Plans and the operation of the Fund will not be
subject to ERISA.

Due to the complexity of the foregoing rules and the taxes, penalties, and
potential liability for noncompliance, stockholders which are Plans should
consult with their counsel and other advisors before their exercise or transfer
of Rights.

NOTICE OF NET ASSET VALUE DECLINE

The Fund has, as required by the staff of the Commission, undertaken to
suspend the Offer until it amends this Prospectus if subsequent to June ___,
2003, the effective date of the Fund's Registration Statement, the Fund's NAV
declines more than 10% from its NAV as of that date. In such event, the Fund
will notify stockholders of any such decline and thereby permit them to cancel
their exercise of Rights.

USE OF PROCEEDS

The Fund anticipates investing substantially all of the net proceeds from
the Offer in accordance with the Fund's investment objective and policies
described below. See "Investment Objective and Policies." Assuming all Shares
offered hereby are sold at the Estimated Subscription Price of [$_____] per
Share, the net proceeds of the Offer are estimated to be approximately
[$________] (after deducting offering expenses payable by the Fund estimated at
approximately [$________]). The Fund anticipates that investment of such net
proceeds will take up to three months from their receipt by the Fund, depending
on market conditions and the availability of appropriate securities, but in no
event will such investment take longer than six months. Pending such investment
in accordance with the Fund's investment objective and policies, the proceeds
will be held in U.S. Government securities (which include obligations of the
United States Government and its agencies and instrumentalities) and other
high-quality, short-term money market instruments.

THE FUND

The New America High Income Fund, Inc. is a diversified, closed-end
management investment company with a leveraged capital structure. T. Rowe Price
currently serves as the Fund's investment adviser. The Fund's investment
objective is to provide high current income, while seeking to preserve
stockholders' capital, through investment in a professionally managed,
diversified portfolio of "high-yield" fixed-income securities, commonly known as
"junk bonds."

The Fund invests primarily in "high-yield" fixed-income securities rated in
the lower categories by established rating agencies, consisting principally of
fixed income securities rated BB or lower by Standard & Poor's Corporation
("S&P") or Ba or lower by Moody's, and, subject to applicable rating agency
guidelines (see "Rating Agency Guidelines"), non-rated securities deemed by the
Investment Adviser to be of comparable quality. See "Investment Objective and
Policies" and "Management of the Fund-The Investment Adviser." The fixed-income
securities in which the Fund invests are regarded by the rating agencies, on
balance, as predominately speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. Such
securities may also be subject to greater market price fluctuations than
lower-yielding, higher-rated debt securities; credit ratings do not reflect this
market risk.

The Fund is subject to various portfolio diversification and related asset
coverage requirements under guidelines established by Moody's and Fitch in
connection with such rating agencies' issuance of ratings of Aaa and AAA,
respectively, with respect to the Fund's ATP. These guidelines require specific
asset coverage ratios to be maintained on the basis of the discounted values of
eligible securities in the Fund's portfolio, which discounts are directly
correlated to the ratings assigned to the securities. The guidelines generally
cause the Fund to invest in higher-quality, lower-yielding assets and/or to
maintain relatively substantial balances of highly liquid assets than would
otherwise be the case in order to remain in compliance with applicable asset
coverage requirements. See "Investment Objective and Policies," "Rating Agency
Guidelines," "Risk Factors and Special Considerations-Leverage" and "Description
of Capital Stock-Asset Maintenance." An investment in the Fund involves a number
of significant risks, which are increased due to the Fund's leveraged capital
structure, and no assurance can be given that the Fund will achieve its
investment objective. See "Risk Factors and Special Considerations."

The Fund has had a leveraged capital structure since its inception. Through
the use of leverage, the Fund seeks to increase dividend yields to holders of
Common Stock over those that would be available in the absence of leverage by
investing in securities which pay interest at a higher rate than the rates of
required dividend payments on its outstanding ATP after related expenses. By
issuing senior securities having a Aaa/AAA rating and agreeing to various
portfolio diversification guidelines established by the relevant rating agencies
in connection therewith, the Fund seeks to obtain a lower cost of leverage than
it believes would be available with lower-rated or unrated senior securities.
However, the use of leverage can, under certain circumstances, adversely affect
the Fund's performance and generally will cause the NAV of the Common Stock to
decline more rapidly when the value of portfolio holdings declines than would be
the case for an unleveraged fund. The asset coverage requirements applicable to
the Fund's senior securities affect the management of its portfolio, as
described in the preceding paragraph. Also, in the event of a decline in the
value of the Fund's portfolio securities, the Fund may be forced to redeem or
repurchase senior securities in order to reduce investment leverage and thereby
remain in compliance with applicable asset coverage requirements, which may
require the liquidation of portfolio securities at prices below the prices at
which

they were purchased. Events such as increases in short-term interest rates,
which increase the dividends required to be paid on the Fund's outstanding ATP,
or increases in expenses associated with the ATP, will, absent a corresponding
increase in the rate of return of portfolio holdings or a decrease in other
expenses, result in a decrease in dividends paid to holders of Common Stock. See
"Risk Factors and Special Considerations-Leverage," "Investment Objective and
Policies" and "Description of Capital Stock."

The Fund's performance since inception illustrates the significant risks
(and potential rewards) associated with investing in "high-yield, high-risk"
securities on a leveraged basis. The Fund commenced operations in 1988 with
total assets of $396,386,000, a NAV per share of Common Stock of $9.25 and
outstanding senior securities of $184 million. At December 31, 1990, following a
significant decline in the high-yield market during 1989 and 1990, the Fund's
total assets were $169,059,000 (a decline of 57.3% from total assets at
inception), its NAV per share of Common Stock was $3.42 (a decline of 63.0% from
NAV per share at inception), and outstanding senior securities aggregated
$82,990,000 (a decline of 54.9% relative to outstanding senior securities at
inception). Total return on an investment in Common Stock from inception through
December 31, 1990 was -58.74%. At December 31, 1997, the Fund's total net assets
were $393,625,000, NAV per share of Common Stock was $5.03 and outstanding
senior securities aggregated $150 million. Cumulative total investment return
for an investment in Common Stock for the one-, three- and five- year periods
ended December 31, 1997 was 21.97%, 95.22% and 140.97%, respectively. At
December 31, 2002, the Fund's total net assets were $231,170,000, NAV per share
of Common Stock was $1.89 and outstanding senior securities aggregated $100
million. Cumulative total investment return for an investment in Common Stock
for the one-, three- and five- year periods ended March 31, 2003 was -11.35%,
-15.97%, and -25.68%, respectively. Past performance is no guarantee of future
results.

As previously noted, on December 2, 2002, T. Rowe Price replaced Wellington
Management as the Fund's investment adviser. The Directors' decision to replace
Wellington Management with T. Rowe Price was prompted primarily by the
Directors' view that the Fund's performance over recent periods had not met
expectations. See "Management of the Fund - The Investment Adviser."

EXISTING LEVERAGE

During 1993, the Fund had outstanding senior securities having an aggregate
principal amount/liquidation preference of $80 million of which $45 million
consisted of short-term debt and $35 million consisted of credit enhanced,
auction preferred stock. In January 1994, the Fund refinanced its outstanding
senior securities through the issuance of two series of ATP having an aggregate
liquidation preference of $100 million plus accumulated and unpaid dividends and
no credit enhancement. In May 1997 and May 1998, the Fund issued two additional
series of ATP having an aggregate liquidation preference of $50 million and $60
million, respectively, plus accumulated and unpaid dividends and no credit
enhancement. In connection with maintaining asset coverage requirements for the
ATP, the Fund repurchased $50 million, $10 million and $50 million of ATP in
fiscal 2002, 2001, and 2000, respectively. Dividends on all series of the ATP
are established in periodic auctions generally held every twenty-eight days
(subject to the right of the Fund to establish longer or shorter dividend
periods), and generally reflect short-term interest rates during short-term
dividend periods. See "Description of Capital Stock - Dividends and Dividend
Periods."

The Fund has an interest payment swap arrangement with Fleet National Bank
("Fleet"). The aggregate effect of this arrangement is to hedge the Fund's
dividend payment obligations with respect to the ATP. Pursuant to the Swap
Arrangement, the Fund makes payments to Fleet on a monthly basis at a fixed
annual rate. In exchange for such payment, Fleet makes payments to the Fund on a
monthly basis at a variable rate determined with reference to the level of
short-term interest rates from time to time. See "Description of Capital Stock."

ORGANIZATION

The Fund is registered under the 1940 Act and was organized as a
corporation under the laws of the State of Maryland on November 19, 1987. The
Fund's address is 33 Broad Street, Boston, Massachusetts 02109, and its
telephone number is (617) 263-6400.

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to provide high current income,
while seeking to preserve stockholders' capital, through investment in a
professionally managed, diversified portfolio of "high-yield" fixed-income
securities, commonly known as "junk bonds." The Fund's investment objective and
the restrictions described below under "Investment Restrictions" are fundamental
policies and thus may not be changed without the affirmative vote of the holders
of a majority of the outstanding shares of the Fund's Common Stock and a
majority of the outstanding shares of the ATP, voting as separate classes, which
means for each class the lesser of (a) more than 50% of such class or (b) 67% or
more of such class present at a meeting at which more than 50% of the
outstanding shares of such class are present or represented by proxy.

No assurance can be given that the Fund will attain its investment
objective. Because of the high-risk nature and price volatility of the Fund's
investments, as well as the Fund's leveraged structure, it may be difficult to
achieve capital preservation on a consistent basis. Specifically, the Fund's
cumulative total investment returns for an investment in Common Stock for one-,
three- and five- year periods ended March 31, 2003 were -11.35%, -15,97% and
-25.68%, respectively. See "The Fund" and "Risk Factors and Special
Considerations."

INVESTMENT STRATEGY

The policies described below may be changed by the Fund without the
approval of the Fund's stockholders.

The Fund seeks to achieve its investment objective by investing primarily
in "high-yield" fixed-income securities rated in the lower categories by
recognized rating agencies, consisting principally of fixed-income securities
rated Ba or lower by Moody's or BB or lower by S&P and, subject to applicable
rating agency guidelines, (see "Rating Agency Guidelines") non-rated securities
deemed by the Investment Adviser to be of comparable quality. Because non-rated
securities are not eligible for inclusion in the calculation of the discounted
value of the Fund's assets under the current rating agency guidelines to which
the Fund is subject, however, it is not presently anticipated that such
securities will comprise a significant percentage of the Fund's investments,
although the Fund reserves full flexibility in this regard. See "Rating Agency
Guidelines." Under normal market conditions, the Fund will have at least 80% of
its net assets, plus the amount of any borrowings for investment purposes,
invested in securities rated BB or lower by S&P or Ba or lower by Moody's or
non-rated securities deemed by the Investment Adviser to be of comparable
quality. This policy may not be changed without providing stockholders with
sixty days' notice. The average maturity of the Fund's portfolio is expected to
be between six and ten years; however, depending upon market conditions, this
range may be shortened or lengthened. The dollar weighted average of credit
ratings of all bonds held by the Fund at April 30, 2003, computed on a monthly
basis, is set forth below. This information reflects the average composition of
the Fund's assets and is not necessarily representative of the Fund as of the
current fiscal year or at any other time in the future.

MOODY'S RATING PERCENTAGE OF PORTFOLIO
-------------- -----------------------

Aa 0.13%
A 0.18%
Baa 3.34%
Ba 31.50%
B 57.00%
Caa 6.81%
Ca 0.37%
C 0.04%
NR 0.63%
------
Total 100.00%

As of April 30, 2003, the weighted average maturity of the Fund's portfolio was
approximately 6.6 years.

The Fund's portfolio reflects requirements established by Moody's and Fitch
in connection with the issuance by such agencies of investment grade ratings for
the Fund's ATP (referred to herein as the "Rating Agency Guidelines"). These
guidelines relate, among other things, to industry and credit quality
characteristics of issuers and specify various "discount factors" for debt
securities (with the level of discount greater as the rating of a security
becomes lower). Under the Rating Agency Guidelines, certain types of securities
in which the Fund may otherwise invest consistent with its investment strategy
are not eligible for inclusion in the calculation of the discounted value of the
Fund's portfolio. Such instruments include, for example, securities rated CC/Ca
or lower by the Rating Agencies, non-rated securities, private placements,
non-U.S. securities, preferred or common stock, zero coupon or similar
securities that do not provide for the periodic payment of interest in cash and
other securities not within the investment guidelines. Accordingly, although the
Fund reserves the right to invest in such securities to the extent set forth
herein, they have not and it is anticipated that they will not constitute a
significant portion of the Fund's portfolio. See "Rating Agency Guidelines."

The Rating Agency Guidelines require that the Fund maintain assets having
an aggregate discounted value, determined on the basis of the guidelines,
greater than the aggregate liquidation preference of the ATP plus specified
liabilities, payment obligations and other amounts, as of periodic valuation
dates. The Rating Agency Guidelines also require the Fund to maintain asset
coverage for the ATP on a non-discounted basis of at least 200% as of the end of
each month, and the 1940 Act requires such asset coverage as a condition to
paying dividends on Common Stock. See "Description of Capital Stock-Asset
Maintenance." The effect of compliance with these guidelines may be to cause the
Fund to invest in higher-quality assets and/or to maintain relatively
substantial balances of highly liquid assets or to restrict the Fund's ability
to make certain investments that would otherwise be deemed potentially desirable
by the Investment Adviser, including private placements of other than Rule 144A
Securities as defined below, and to limit or delay the Fund's ability to
reinvest cash in a rising "high-yield" market. See "The Fund" and "Risk Factors
and Special Considerations-Leverage." The Rating Agency Guidelines are subject
to change from time to time with the consent of the relevant rating agency and
would not apply if the Fund in the future elected not to use investment leverage
consisting of senior securities rated by one or more rating agencies, although
other similar arrangements might apply with respect to other senior securities
that the Fund may issue.

There is no minimum rating requirement applicable to the fixed-income
securities which may be acquired by the Fund. However, compliance with the
Rating Agency Guidelines, under which securities rated below CCC/Caa are not
eligible for inclusion in the calculation of the discounted value of the Fund's
assets and other lower-rated securities are heavily discounted in such
calculation, may have the effect of precluding or limiting investments in such
issues.

"High-yield" bonds, the generic name for corporate bonds rated between
BB/Ba and C/C by the Rating Agencies, are frequently issued by corporations in
the growth stage of their development. Bonds which are rated BB/Ba, B/B,
CCC/Caa, CC/Ca and C/C are regarded by the rating agencies, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations. Such securities are
also generally considered to be subject to greater risk than securities with
higher ratings with regard to a deterioration of general economic conditions.
Further information concerning the ratings of corporate bonds, including the
rating categories of Moody's, Fitch and S&P is provided in Appendix A.
"High-yield" securities held by the Fund may include securities received as a
result of a corporate reorganization or issued as part of a corporate takeover.
Securities issued to finance corporate restructurings may have special credit
risks due to the highly leveraged conditions of the issuers, and such securities
are usually subordinate to other securities issued by the issuer. In addition,
such issuers may lose experienced management as a result of the restructurings.
Finally, the market price of such securities may be more volatile to the extent
that expected benefits from restructuring do not materialize.

Fixed-income securities which the Fund has the right to acquire include
preferred stocks (limited to 20% of the Fund's total assets and subject to
compliance with the Rating Agency Guidelines as described above) and all types
of debt obligations having varying terms with respect to security or credit
support, subordination, purchase price, interest payments and maturity. Such
obligations may include, for example, bonds, debentures, notes, mortgage or
other asset-backed instruments, equipment lease certificates, equipment trust
certificates, conditional sales contracts, commercial paper, zero coupon
securities and obligations issued or guaranteed by the United States government
or any of its political subdivisions, agencies or instrumentalities (including
obligations, such as repurchase agreements, secured by such instruments). Most
debt securities in which the Fund will invest will bear

interest at fixed rates. However, the Fund reserves the right to invest without
limitation in fixed-income securities that have variable rates of interest or
involve equity features, such as contingent interest or participations based on
revenues, sales or profits (i.e., interest or other payments, often in addition
to a fixed rate of return, that are based on the borrower's attainment of
specified levels of revenues, sales or profits and thus enable the holder of the
security to share in the potential success of the venture). The Fund also has
the right to acquire common stock as part of a unit in connection with the
purchase of debt securities consistent with the Fund's investment policies,
although such investments are not eligible for inclusion in the calculation of
the Fund's discounted value under the Rating Agency Guidelines.

The Fund may invest up to 20% of its total assets in illiquid securities
(determined as of the time of investment). Securities that are eligible for
resale under Rule 144A of the Securities Act of 1933, as amended, ("Rule 144A")
are not included in this 20% limitation. Illiquid securities are defined by the
Commission as those that cannot be sold in the ordinary course of business
within seven days at approximately the value assigned to them by the Fund.
Illiquid securities may offer higher yields than comparable publicly traded
securities, but the Fund may not be able to sell these securities when the
Investment Adviser considers it desirable to do so. Illiquid securities are
generally eligible for inclusion in the discounted value of the portfolio for
purposes of the Rating Agency Guidelines of Moody's or Fitch in effect as of the
date of this Prospectus, provided they are eligible for resale under Rule 144A
("Rule 144A Securities"). See "Rating Agency Guidelines."

The Fund is permitted to invest up to 20% of its total assets in zero
coupon securities, although such securities also may not be included in
calculating the discounted value of the Fund's portfolio under the Rating Agency
Guidelines. Zero coupon securities pay no cash income but are purchased at a
discount from their value at maturity. When held to maturity, their entire
return comes from the difference between their purchase price and their maturity
value. There may be special tax considerations associated with investing in
securities structured as deferred interest, zero coupon or payment-in-kind
securities. The Fund records the interest on these securities as income even
though it receives no cash interest until each security's maturity date. The
Fund will be required to distribute all or substantially all such amounts
annually and may have to obtain the cash to do so by selling securities. Thus,
to meet cash distribution obligations, the Fund may be required to liquidate a
portion of its assets, which it would otherwise continue to hold, at a
disadvantageous time. These distributions will be taxable to stockholders as
ordinary income. In the case of securities structured as deferred interest, zero
coupon or payment-in-kind securities, the market prices of such securities are
affected to a greater extent by interest rate changes and, therefore, tend to be
more volatile than securities which pay interest periodically and in cash.

The Fund may invest in U.S. dollar-denominated bonds sold in the United
States by non-U.S. issuers ("Yankee bonds").

Notwithstanding any of the foregoing, when market conditions warrant a
temporary defensive investment strategy, including when it is necessary to
maintain compliance with the Rating Agency Guidelines (under which the Fund's
ability to invest in lower-rated securities having relatively low discounted
values may be restricted, particularly as the market values of portfolio
holdings decline), the Fund may invest without limitation in money market
instruments, including rated and (subject to compliance with the Rating Agency
Guidelines) unrated commercial paper of domestic and foreign corporations,
certificates of deposit, bankers' acceptances and other obligations of banks,
repurchase agreements and short-term obligations issued or guaranteed by the
United States government or its instrumentalities or agencies. The yield on
these securities will tend to be lower than the yield on other securities to be
purchased by the Fund. The Fund reserves the right to invest in securities rated
higher than Ba by Moody's or BB by S&P or non-rated fixed-income securities of
comparable quality when the difference in yields between quality classifications
is relatively narrow or for temporary defensive purposes, including maintenance
of applicable asset coverage requirements, when the Investment Adviser
anticipates adverse market conditions. Investments in higher-rated issues may
serve to lessen a decline in NAV but may also affect the amount of current
income produced by the Fund, since the yields from such issues are usually lower
than those from lower-rated issues.

As noted herein, the Fund has had a leveraged capital structure since its
inception and, as of April 30, 2003, had outstanding 4,000 shares of preferred
stock issued in four series, the ATP, having an aggregate liquidation preference
of $100 million plus accumulated and unpaid dividends. The ATP is subject to
optional redemption by the Fund. The Fund is required to redeem the ATP in whole
or in part in the event the Fund fails to satisfy

applicable asset coverage requirements and is required to redeem the ATP in
whole in the event the Fund fails to maintain the Aaa/AAA Credit Rating (as
defined below) for the ATP and such rating is not restored on a timely basis.
See "Description of Capital Stock-Mandatory Redemption." The Aaa/AAA Credit
Rating is a rating for the ATP in the highest rating category of any two
nationally recognized statistical rating organizations (as used in the
Securities Exchange Act of 1934, as amended), one of which must be Moody's or
S&P. Any such redemption will result in a loss of investment leverage and a
reduction in Fund income, the effect of which will be borne exclusively by the
holders of Common Stock. See "The Fund."

INVESTMENT RESTRICTIONS

The following investment restrictions are fundamental policies of the Fund,
and may not be amended without the affirmative vote of the holders of a majority
of the outstanding shares of the Fund's Common Stock and a majority of the
outstanding shares of the ATP, voting as separate classes, which means for each
class the lesser of (a) more than 50% of such class or (b) 67% or more of such
class present at a meeting at which more than 50% of the outstanding shares of
such class are present or represented by proxy. Under these restrictions, the
Fund may not:

1. Borrow money (through reverse repurchase agreements or otherwise) or
issue senior securities, except as permitted by Section 18 of the 1940 Act.

2. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure borrowings permitted by restriction 1 above. Collateral arrangements
with respect to margins for futures contracts and options are not deemed to be
pledges or other encumbrances for purposes of this restriction.

3. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of purchases and sales of securities and except
that the Fund may make margin payments in connection with transactions in
futures contracts and options.

4. Make short sales of securities or maintain a short position for the
account of the Fund unless at all times when a short position is open the Fund
owns an equal amount of such securities or owns securities which, without
payment of any further consideration, are convertible into or exchangeable for
securities of the same issue as, and in equal amount to, the securities sold
short.

5. Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, the Fund
may be deemed to be an underwriter under the federal securities laws.

6 Purchase or sell real estate (including real estate mortgage loans),
although the Fund may purchase securities of issuers that deal in real estate,
securities that are secured by interests in real estate and securities
representing interests in real estate.

7. Purchase or sell commodities or commodity contracts, except that the
Fund may purchase or sell financial futures contracts and related options.

8. Make loans, except by purchase of debt obligations in which the Fund
may invest consistently with its investment policies, by entering into
repurchase agreements with respect to not more than 25% of the value of its
total assets, or through the lending of its portfolio securities with respect to
not more than one-third of the value of its total assets.

9. Acquire more than 10% of the voting securities of any issuer.

10. Invest more than 25% of the value of its total assets in any one
industry, provided that this limitation does not apply to obligations issued or
guaranteed as to interest and principal by the United States government or its
agencies or instrumentalities.

11. Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, although the Fund may purchase securities of issuers which deal in,
represent interests in or are secured by interests in such leases, rights or
contracts.

12. Make investments for the purpose of exercising control or management
over the issuer of any security.

Although the provisions of restrictions 2 (with respect to futures
contracts), 3 and 7 permit the Fund to engage in certain practices to a limited
extent, the Fund does not currently engage in such practices. See "Certain
Investment Practices" below.

The Fund also will be subject to certain investment restrictions so long as
the ATP remains outstanding, which may prohibit or limit certain practices that
are otherwise authorized. See "Certain Investment Practices" below and "Rating
Agency Guidelines."

CERTAIN INVESTMENT PRACTICES

The Fund and the Investment Adviser reserve the right to engage in certain
investment practices described below in order to help achieve the Fund's
investment objective. So long as the ATP is outstanding, the Fund may not
utilize certain of the practices described below, such as entering into swap
agreements, the making of securities loans and buying or selling futures
contracts and options thereon, unless the Fund receives written confirmation
from Moody's, Fitch or any other rating agency which is then rating the ATP and
which so requires, that any such action will not impair the Aaa/AAA Credit
Rating. Further, the Rating Agency Guidelines limit or have the effect of
limiting the Fund's use of other investment practices described below, such as
investments in non-U.S. securities, private placements (except Rule 144A
Securities as discussed below) and options, to the extent such investments are
not eligible for inclusion in the discounted value of the Fund's portfolio or
the Rating Agency Guidelines specify terms and restrictions on such investments.

RATING AGENCY RESTRICTIONS. While the Fund has reserved the right to employ
the investment practices described below, for so long as any of the ATP is
outstanding and either Moody's or Fitch is rating the ATP, the Fund will not,
unless it has received written confirmation from Moody's and/or Fitch, as
applicable, that any such action would not impair the respective rating then
assigned by Moody's or Fitch to the ATP, engage in any one or more of the
following transactions: (i) purchase or sell futures contracts or options
thereon with respect to portfolio securities or write unsecured put or uncovered
call options on portfolio securities, engage in options transactions involving
cross-hedging, or enter into any swap arrangement, other than the arrangement
described herein for which the Fund has obtained consent of Moody's and Fitch;
(ii) borrow money, except that the Fund may, without obtaining the written
confirmation described above, borrow money for the purpose of clearing
securities transactions; provided that the ATP Basic Maintenance Amount (as
defined below under "Description of Capital Stock") would continue to be
satisfied after giving effect to such borrowing and if the borrowing matures in
not more than sixty days and is non-redeemable; (iii) except in connection with
a refinancing of the ATP, issue any class or series of stock ranking prior to or
on a parity with the ATP with respect to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of the Fund,
or reissue any shares of ATP previously purchased or redeemed by the Fund; (iv)
engage in any short sales of securities; (v) lend portfolio securities; or (vi)
merge or consolidate into or with any other corporation.

In addition, for so long as the ATP is rated by Moody's or Fitch: (a) for
purposes of the applicable rating agency asset coverage requirements, assets in
margin accounts are not eligible for inclusion in the determination of
discounted asset coverage, (b) where delivery of a security may be made to the
Fund with any of a class of securities, the Fund shall assume for purposes of
the rating agency coverage requirements that it takes delivery of that security
which yields it the least value, and (c) the Fund will not engage in or is
limited with respect to certain practices such as engaging in options
transactions for leveraging or speculative purposes.

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements on up
to 25% of the value of its total assets. A repurchase agreement is a contract
under which the Fund acquires a security for a relatively short period (usually
not more than one week) subject to the obligation of the seller to repurchase
and the Fund to re-sell such security at a fixed time and price (representing
the Fund's cost plus interest). It is the Fund's present intention

to enter into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the United States
government or its agencies or instrumentalities. Repurchase agreements may also
be viewed as loans made by the Fund which are collateralized by the securities
subject to repurchase. The Investment Adviser will monitor such transactions to
ensure that the value of the underlying securities will be at least equal at all
times to the total amount of the repurchase obligation, including the interest
factor. If the seller defaults, the Fund could realize a loss on the sale of the
underlying security to the extent that the proceeds of sale including accrued
interest are less than the resale price provided in the agreement including
interest. In addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the Fund may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Fund
is treated as an unsecured creditor and required to return the underlying
collateral to the seller's estate.

REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with respect to debt obligations which could otherwise be sold by the
Fund. A reverse repurchase agreement is an instrument under which the Fund may
sell an underlying debt instrument and simultaneously obtain the commitment of
the purchaser (a commercial bank or a broker or dealer) to sell the security
back to the Fund at an agreed upon price on an agreed upon date. The value of
underlying securities will be at least equal at all times to the total amount of
the resale obligation, including the interest factor. The Fund receives payment
for such securities only upon physical delivery or evidence of book entry
transfer by its custodian. Securities sold by the Fund under a reverse
repurchase agreement must be either segregated pending repurchase or the
proceeds must be segregated on the Fund's books and records pending repurchase.
Reverse repurchase agreements could involve certain risks in the event of
default or insolvency of the other party, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities. An
additional risk is that the market value of securities sold by the Fund under a
reverse repurchase agreement could decline below the price at which the Fund is
obligated to repurchase them. The Fund will not hold more than 5% of the value
of its total assets in reverse repurchase agreements.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. From time to time, in the
ordinary course of business, the Fund may purchase securities on a when-issued
or delayed delivery basis (i.e., delivery and payment can take place beyond the
customary settlement date for transactions of securities of that nature). The
purchase price and the interest rate payable on the securities are fixed on the
transaction date. The securities so purchased are subject to market fluctuation,
and no interest accrues to the Fund until delivery and payment take place. At
the time the Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, it will record the transaction and thereafter reflect
the value of such securities in determining its NAV. The Fund will make
commitments for such when-issued transactions only with the intention of
actually acquiring the securities. To facilitate such acquisitions, the Fund's
custodian bank will maintain, in a separate account of the Fund, liquid assets
from its portfolio, marked to market daily and having value equal to or greater
than such commitments. On the delivery dates for such transactions, the Fund
will meet its obligations from maturities or sales of the securities held in the
separate account and/or from then available cash flow. If the Fund chooses to
dispose of the right to acquire a when-issued security prior to its acquisition,
it could, as with the disposition of other portfolio obligations, incur a gain
or loss due to market fluctuation.

PERMITTED INVESTMENTS IN DIRECT PLACEMENT SECURITIES. The Fund is permitted
by its investment objective and policies to invest without limitation in direct
placement securities. Direct placement securities are restricted securities and
therefore are subject to certain of the following risks which would not apply to
securities that were free for immediate public sale. In a private sale of
restricted securities, which may involve protracted negotiations and a limited
number of purchasers, the possibility of delay and the necessity of obtaining a
commitment of investment intent from the purchasers might adversely affect the
price of the securities. In a public offering, the delay resulting from
registration may make it impossible for the Fund to sell securities at the most
desirable time, and the price of the securities may decline between the time of
the decision to sell and the time when the sale is accomplished. Because only
the issuer of the securities can prepare and file a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), the Fund may not
be able to obtain registration at the most desirable time.

In view of the above risks, the proceeds to the Fund from the sale of
restricted securities acquired by direct placement could be less than the
proceeds from the sale of similar securities which were free for immediate
public resale. If the Fund is required to liquidate portfolio investments to
satisfy applicable asset coverage requirements, it may be required to dispose of
direct placement securities at times or prices which are disadvantageous to the
Fund.

Direct placement securities, unless they are Rule 144A Securities, are
generally ineligible for inclusion in the calculation of the discounted value of
the Fund's investment portfolio under the Rating Agency Guidelines with which
the Fund will be required to comply for so long as the shares of ATP remain
outstanding. The guidelines require the Fund to maintain portfolio assets
eligible for inclusion in such calculation which have an aggregate discounted
value in excess of the specified asset coverage levels and may therefore limit
the Fund's ability to invest in direct placement securities.

FOREIGN INVESTMENTS. The Fund may invest up to 10% of the value of its
total assets in securities principally traded in foreign markets. In addition,
subject to the Fund's basic investment strategy, the Fund may also purchase
Eurodollar certificates of deposit issued by branches of U.S. banks. Foreign
investments may involve risks not present to the same degree in domestic
investments, such as future political and economic developments, the imposition
of withholding taxes on interest income, seizure or nationalization of foreign
deposits, the establishment of exchange controls and the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal of and interest on such obligations. Foreign securities may be less
liquid and more volatile than U.S. securities, and foreign accounting and
disclosure standards may differ from U.S. standards. In addition, settlement of
transactions in foreign securities may be subject to delays, which could result
in adverse consequences to the Fund including restrictions on the subsequent
resale of such securities. The value of foreign investments may rise or fall
because of changes in currency exchange rates.

INTEREST RATE TRANSACTIONS. The Fund may enter into interest rate
transactions, such as swaps, caps, collars and floors for the purpose or with
the effect of hedging its portfolio and/or its payment obligations with respect
to senior securities. The costs of any such interest rate transaction and the
payment made or received by the Fund thereunder would be borne by or inure to
the benefit of the Fund's common stockholders. If there is a default by the
other party to such a transaction, the Fund will have contractual remedies
pursuant to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
The use of interest rate swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Investment Adviser is incorrect in its
forecasts of market values, interest rates and other applicable factors, the
investment performance of the Fund would diminish compared with what it would
have been if these investment techniques were not used. Moreover, even if the
Investment Adviser is correct in its forecasts, there is a risk that the swap
position may correlate imperfectly with the price of the asset or liability
being hedged.

The Fund has entered into an interest payment swap arrangement with Fleet.
The aggregate effect of this arrangement is to hedge the Fund's dividend payment
obligations with respect to the ATP. Pursuant to the Swap Arrangement, the Fund
makes payments to Fleet on a monthly basis at fixed annual rates while receiving
Fleet payments at a variable rate determined with reference to the level of
short-term interest rates from time to time. See "Description of Capital Stock."

The Fund makes dividend payments to the holders of the ATP on the basis of
the results of periodic auctions in accordance with its terms without regard to
the swap and would continue to do so in the event the swap is terminated. The
Fund has agreed to terminate the arrangement in the event it fails to maintain
certain asset coverage requirements. See "Rating Agency Guidelines."

OPTIONS. The Fund may write (sell) call options which are traded on
national securities exchanges with respect to securities in its portfolio. The
Fund may only write "covered" call options, that is, options on securities it
holds in its portfolio or has an immediate right to acquire through conversion
or exchange of securities held in its portfolio. The Fund reserves the right to
write call options on its portfolio securities in an attempt to realize a
greater current return than would be realized on the securities alone. The Fund
may also write call options as a partial hedge against a possible market
decline. In view of its investment objective, the Fund generally would write
call options only in circumstances in which the Investment Adviser does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security. As the writer of
a call option, the Fund receives a premium for undertaking the obligation to
sell the underlying security at a fixed price during the option period, if the
option is exercised. So long as the Fund remains obligated as a writer of a call
option, it forgoes the opportunity to profit from increases in the market price
of the underlying security above the exercise price of the option, except
insofar as the premium represents such a profit (and retains the risk of loss

should the value of the underlying security decline). The Fund may also enter
into "closing purchase transactions" in order to terminate its obligation as a
writer of a call option prior to the expiration of the option. Although the
writing of call options only on national securities exchanges increases the
likelihood that the Fund will be able to, make closing purchase transactions,
there is no assurance that the Fund will be able to effect such transactions at
any particular time or at any acceptable price. The writing of call options
could result in increases in the Fund's portfolio turnover rate, especially
during periods when market prices of the underlying securities appreciate.

For purposes of valuation of the Fund's assets under the Rating Agency
Guidelines (see "Description of Capital Stock - Asset Maintenance"): (i) if the
Fund writes a call option, the underlying asset will be valued as follows: (a)
if the option is exchange-traded and may be offset readily or if the option
expires before the earliest possible redemption of the ATP, at the lower of the
discounted value of the underlying security of the option and the exercise price
of the option or (b) otherwise, it has no value; (ii) if the Fund writes a put
option, the underlying asset will be valued as follows: the lesser of (a)
exercise price and (b) the discounted value of the underlying security
determined in accordance with Rating Agency Guidelines; and (iii) call or put
option contracts which the Fund buys have no value. For so long as the ATP are
rated by Moody's or Fitch: (i) the Fund will not engage in options transactions
for leveraging or speculative purposes; (ii) the Fund will not write or sell any
anticipatory contracts pursuant to which the Fund hedges the anticipated
purchase of an asset prior to completion of such purchase; (iii) the Fund will
not enter into an option transaction with respect to portfolio securities
unless, after giving effect thereto, the Fund would continue to be in compliance
with applicable rating agency asset coverage requirements (see "Description of
Capital Stock-Asset Maintenance"); (iv) the Fund shall write only
exchange-traded options on exchanges approved by Moody's (if Moody's is then
rating the ATP) and Fitch (if Fitch is then rating the ATP); and (v) there shall
be a quarterly audit made of the Fund's options transactions, if any, by the
Fund's independent accountants to confirm that the Fund is in compliance with
these standards.

FUTURES CONTRACTS AND RELATED OPTIONS. The Investment Adviser does not
currently intend that the Fund will invest in futures contracts or related
options with respect to the portfolio. However, the Fund has reserved the right,
subject to the approval of the Board of Directors, to purchase and sell
financial futures contracts and options on such futures contracts for the
purpose of hedging its portfolio securities (or portfolio securities which it
expects to acquire) against anticipated changes in prevailing interest rates.
This technique could be employed if the Investment Adviser anticipates that
interest rates may rise, in which event the Fund could sell a futures contract
to protect against the potential decline in the value of its portfolio
securities. Conversely, if declining interest rates were anticipated, the Fund
could purchase a futures contract to protect against a potential increase in the
price of securities the Fund intends to purchase.

In the event the Fund determines to invest in futures contracts and options
thereon, it will not purchase or sell such instruments if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts would exceed 5% of the value of the
Fund's total assets. In addition, in accordance with the regulations of the
Commodity Futures Trading Commission (the "CFTC") under which the Fund will be
exempted from registration as a commodity pool operator, the Fund may only enter
into futures contracts and options on futures contracts transactions for other
than hedging purposes if immediately thereafter the sum of the amount of the
initial margin deposits and premiums on open positions with respect to futures
and options used for non-hedging purposes would exceed 5% of the market value of
the Fund's net assets. There is no overall limitation on the percentage of the
Fund's portfolio securities which may be subject to a hedge position. If the
CFTC were to amend its regulations such that the Fund would be permitted to
write options on futures contracts for income purposes without CFTC
registration, the Fund would have the right to engage in such transactions for
those purposes, subject to the approval of the Board of Directors. The extent to
which the Fund may enter into transactions involving futures contracts also may
be limited by the requirements of the Code for qualification as a regulated
investment company.

RISKS OF HEDGING TRANSACTIONS. The use of options, financial futures and
options on financial futures may involve risks not associated with other types
of investments which the Fund intends to purchase, and it is possible that a
portfolio that utilizes hedging strategies may perform less well than a
portfolio that does not make use of such devices. Use of put and call options
may result in losses to the Fund, force the sale of portfolio securities at
inopportune times or for prices other than at current market values, limit the
amount of appreciation the Fund can realize on its investments or cause the Fund
to hold a security it might otherwise sell. The use of options and futures
transactions entails certain other risks. In particular, the variable degree of
correlation between price movements of

futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the contemplated use of these futures
contracts and options thereon should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
and the sale of options thereon would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium.

INCURRENCE OF INDEBTEDNESS. For so long as any of the ATP are outstanding,
the Fund will not borrow money or issue senior securities representing
indebtedness unless it has received written notice from Moody's (if Moody's is
then rating the ATP) and Fitch (if Fitch is then rating the ATP) and any other
rating agency which is then rating the ATP which so requires that such action
would not impair the Aaa/AAA Credit Rating. For so long as any of the Fund's
preferred stock, including the ATP, is outstanding, the lesser of (a) a vote of
67% of the shares of the Fund's preferred stock present at a meeting at which
more than 50% of the outstanding shares of preferred stock entitled to vote is
present or (b) a vote of more than 50% of the outstanding shares of preferred
stock, in each case voting as a separate class, must approve any Fund borrowing.
Preferred stockholder approval, however, is not required if the Fund borrows for
temporary or emergency purposes in accordance with its investment policies and
restrictions or for the purpose of clearing transactions. To the extent that the
Fund does incur any borrowings, such borrowings would typically be senior in
right of payment to the ATP and the Common Stock upon liquidation of the Fund.
However, for so long as any of the ATP is outstanding and either Moody's or
Fitch is rating the ATP, the Fund will not lend portfolio securities unless it
has received written confirmation from Moody's and/or Fitch that such action
would not impair the respective rating.

SECURITIES LOANS. The Fund reserves the right to make secured loans of its
portfolio securities amounting to not more than one-third of the value of its
total assets, thereby realizing additional income. However, for so long as any
of the ATP is outstanding and either Moody's or Fitch is rating the ATP, the
Fund will not lend portfolio securities unless it has received written
confirmation from Moody's and/or Fitch that such action would not impair the
respective rating. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delays in recovery of the securities
or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy securities loans are made to unaffiliated
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities subject to the loan. The borrower pays
to the Fund an amount equal to any interest or dividends received on the
securities subject to the loan. The Fund retains all or a portion of the
interest received on investment of the cash collateral or receives a fee from
the borrower. Although voting rights or rights to consent with respect to the
loaned securities pass to the borrower, the Fund retains the right to call the
loans at any time on reasonable notice, and it will do so in order that the
securities may be voted by the Fund if the holders of such securities are asked
to vote upon or consent to matters materially affecting the investment. The Fund
may also call such loans in order to sell the securities involved.

RATING AGENCY GUIDELINES

The Fund intends at all times that, so long as any ATP is outstanding and
Moody's and Fitch are then rating the ATP, the composition of its portfolio will
reflect guidelines established by Moody's and Fitch in connection with obtaining
the Aaa/AAA Credit Rating with respect to the ATP. Should the Fund determine to
seek (and be successful in obtaining) a rating from any other rating agency or
issue senior securities, other than the ATP, which are rated or otherwise
subject to portfolio diversification or similar requirements, the composition of
its portfolio would also reflect the guidelines and requirements established by
any rating agency rating such securities or by the purchaser or purchasers of
such securities. Moody's and Fitch, nationally recognized statistical rating
organizations, issue ratings for various securities reflecting the perceived
creditworthiness of such securities. The Fund has paid certain fees to Moody's
and Fitch for rating shares of the ATP. The guidelines described below have been
developed independently by Moody's and Fitch in connection with issuance of
asset-backed and similar securities, including debt obligations and adjustable
rate preferred stocks, generally on a case-by-case basis through discussions
with the issuers of these securities. The guidelines are designed to ensure that
assets underlying outstanding debt or preferred stock will be sufficiently
varied and will be of sufficient quality and amount to justify investment-grade

ratings. The guidelines do not have the force of law, but have been adopted by
the Fund in order to satisfy current requirements necessary for Moody's and
Fitch to issue the above-described ratings for the ATP, which ratings are
generally relied upon by institutional investors in purchasing such securities.
In the context of a closed-end investment company such as the Fund, therefore,
the guidelines provide a set of tests for portfolio composition and asset
coverage which supplement (and in some cases are more restrictive than) the
applicable requirements under the 1940 Act, and which accordingly affect
significantly the management of the Fund's portfolio. A rating agency's
guidelines will apply to the ATP only so long as such rating agency is rating
SUCH shares and SUCH guidelines are subject to amendment with the consent of the
relevant rating agency.

The Fund intends to maintain a discounted value for its portfolio
("Discounted Value") at least equal to the amount specified by each rating
agency (the "ATP Basic Maintenance Amount"), the determination of which is as
set forth under "Description of Capital Stock-Asset Maintenance." Moody's and
Fitch have each established separate guidelines for determining Discounted
Value. To the extent any particular portfolio holding does not satisfy the
applicable rating agency's guidelines, all or a portion of such holding's value
will not be included in the calculation of Discounted Value (as defined by such
rating agency). The Moody's and Fitch guidelines do not impose any limitations
on the percentage of Fund assets that may be invested in holdings not eligible
for inclusion in the calculation of the Discounted Value of the Fund's
portfolio. The amount of such assets included in the portfolio at any time may
vary depending upon the rating, diversification and other characteristics of the
assets included in the portfolio which are eligible for inclusion in the
Discounted Value of the portfolio under the Rating Agency Guidelines ("Eligible
Assets").

MOODY'S Aaa RATING GUIDELINES

For purposes of calculating the Discounted Value of the Fund's portfolio
under current Moody's guidelines, the fair market value of portfolio securities
eligible for consideration under such guidelines ("Moody's Eligible Assets")
must be discounted by certain discount factors set forth below ("Moody's
Discount Factors"). The Discounted Value of a portfolio security under Moody's
guidelines is the market value thereof determined in accordance with criteria
provided by the relevant rating agency ("Market Value") divided by the Moody's
Discount Factor. The Moody's Discount Factor with respect to securities other
than those described below will be the percentage provided in writing by
Moody's.

CORPORATE DEBT SECURITIES. Under current Moody's guidelines, portfolio
securities that are corporate debt securities will not be included in the
calculation of the Discounted Value of the Fund's portfolio unless (a) such
securities are rated Caa or higher by Moody's; (b) the senior unsecured rating
of the issuer's corporate bonds is higher than B3; (c) such securities provide
for the periodic payment of interest in cash in U.S. dollars; (d) such
securities do not provide for conversion or exchange into equity capital at any
time over their lives; (e) for debt securities rated Bal and below, no more than
10% of the original amount of such issue may constitute Moody's Eligible Assets;
(f) the issuer of such securities has not filed a petition seeking relief under
the U.S. Bankruptcy Code of which the issuer has given public notice; (g) the
issuer of such securities is not in default on the payment of principal and
interest on any of its fixed income obligations or the payment of dividends on
any of its preferred stock; (h) the auditor's report to the most recently issued
audited financial statements of such issuer includes an "unqualified opinion,"
as defined in applicable auditing standards; and (i) such securities have been
registered under the Securities Act or are Rule 144A Securities as determined by
the Corporation's adviser acting subject to the supervision of the Corporation's
Board of Directors. Thus, the Moody's guidelines have the effect of prohibiting
or significantly restricting investments in securities other than fixed-income
obligations of U.S. issuers which are rated Caa or higher.

The Discounted Value of any Moody's Eligible Asset that is a corporate debt
security is the percentage determined by reference to the rating on such asset
with reference to the remaining term to maturity of such assets, in accordance
with the table set forth below:

MOODY'S DISCOUNT FACTORS --
CORPORATE DEBT SECURITIES+

REMAINING TERM RATING CATEGORY
TO -----------------------------------------------------------------------------------------
MATURITY ASSET Aaa Aa A Baa Ba B* Caa
-------------- --- -- - --- -- -- ---

1 Year 112% 118% 123% 128% 139% 150% 260%
2 Years 118 124 130 135 147 158 260
3 Years 123 129 135 141 153 165 260
4 Years 129 135 141 148 160 172 260
5 Years 134 141 147 154 166 179 260
7 Years 142 149 155 162 176 189 260
10 Years 148 156 163 170 184 198 260
15 Years 153 161 168 175 190 205 260
20 Years 161 169 177 184 200 215 260
30 Years 162 170 178 185 201 216 260

----------
* Senior debt securities of an issuer rated B3 shall be deemed to be Caa
rated securities for purposes of determining the applicable Moody's
Discount Factor.

+ The Moody's Discount Factor applied to Rule 144A Securities is (i) 130% of
the Moody's Discount Factor which would apply were the securities
registered under the Securities Act, if such securities are from issues of
an original issue size less than $125 million and (ii) the Moody's Discount
Factor which would apply were the securities registered under the
Securities Act, if such securities are from issues of an original issue
size of $125 million or more.

The Moody's guidelines impose minimum issue size, issuer and industry
diversification and other requirements for purposes of determining Moody's
Eligible Assets. Specifically, portfolio holdings as described below must be
within the following diversification and issue size requirements in order to
constitute Moody's Eligible Assets includable within the calculation of
Discounted Value:

MAXIMUM SINGLE MAXIMUM SINGLE MAXIMUM ISSUE SIZE
ASSET RATINGS(1) ISSUER (%)(2,3) INDUSTRY (%)(3,4) ($ IN MILLIONS)(6)
---------------- ----------------- ------------------- ------------------

Aaa 100% 100% $ 100
Aa 20 60 100
A, Prime-1 10 40 100
Baa 6 20 100
Ba 4 12 50(5)
B1-B2 3 8 50(5)
B3 (Caa subordinate) 2 5 50(5)

See accompanying notes

----------
(1) Refers to the senior debt rating of asset.

(2) Companies subject to common ownership of 25% or more are considered as one
name.

(3) Percentages represent a portion of the aggregate Market Value of corporate
securities.

(4) Industries are determined according to industry classifications specified
by Moody's ("Moody's Industry Classifications"). See below.

(5) Bonds from issues ranging from $50 million to $100 million are limited to
20% of the collateral pool.

(6) Except for preferred stock, which has a minimum issue size of $50 million.

The Moody's Industry Classifications, for the purposes of determining
Moody's Eligible Assets, mean each of the following industry classifications,
determined with respect to particular issues in the discretion of the Fund:

AEROSPACE AND DEFENSE: Major Contractor, Subsystems, Research,
Aircraft Manufacturing, Arms, Ammunition

AUTOMOBILE: Automotive Equipment, Auto-Manufacturing, Auto Parts
Manufacturing, Personal Use Trailers, Motor Homes, Dealers

BANKING: Bank Holding, Savings and Loans, Consumer Credit, Small Loan,
Agency, Factoring, Receivables

BEVERAGE, FOOD AND TOBACCO: Beer and Ale, Distillers, Wines and
Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar,
Canned Foods, Corn Refiners, Dairy Products, Meat Products, Poultry
Products, Snacks, Packaged Foods, Distributors, Candy, Gum, Seafood, Frozen
Food, Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil

BUILDINGS AND REAL ESTATE: Brick, Cement, Climate Controls,
Contracting, Engineering, Construction, Hardware, Forest Products
(building-related only), Plumbing, Roofing, Wallboard, Real Estate, Real
Estate Development, REITs, Land Development

CHEMICALS, PLASTICS AND RUBBER: Chemicals (non-agriculture),
Industrial Gases, Sulphur, Plastics, Plastic Products, Abrasives, Coatings,
Paints, Varnish, Fabricating

CONTAINERS, PACKAGING AND GLASS: Glass, Fiberglass, Containers made
of: Glass, Metal, Paper, Plastic, Wood, or Fiberglass

PERSONAL AND NON DURABLE CONSUMER PRODUCTS (MANUFACTURING ONLY):
Soaps, Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies

DIVERSIFIED/CONGLOMERATE MANUFACTURING

DIVERSIFIED/CONGLOMERATE SERVICE

DIVERSIFIED NATURAL RESOURCES, PRECIOUS METALS AND MINERALS:
Fabricating, Distribution

ECOLOGICAL: Pollution Control, Waste Removal, Waste Treatment, Waste
Disposal

ELECTRONICS: Computer Hardware, Electric Equipment, Components,
Controllers, Motors, Household Appliances, Information Service
Communication Systems, Radios, TVS, Tape Machines, Speakers, Printers,
Drivers, Technology

FINANCE: Investment Brokerage, Leasing, Syndication, Securities

FARMING AND AGRICULTURE: Livestock, Grains, Produce; Agricultural
Chemicals, Agricultural Equipment, Fertilizers

GROCERY: Grocery Stores, Convenience Food Stores

HEALTHCARE, EDUCATION AND CHILDCARE: Ethical Drugs, Proprietary Drugs,
Research, Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital
Supplies, Medical Equipment

HOME AND OFFICE FURNISHINGS, HOUSEWARES AND DURABLE CONSUMER PRODUCTS:
Carpets, Floor Coverings, Furniture, Cooking, Ranges

HOTELS, MOTELS, INNS AND GAMING

INSURANCE: Life, Property and Casualty, Broker, Agent, Surety

LEISURE, AMUSEMENT, MOTION PICTURES, ENTERTAINMENT: Boating, Bowling,
Billiards, Musical Instruments, Fishing, Photo Equipment, Records, Tapes,
Sports, Outdoor Equipment (Camping), Tourism, Resorts, Games, Toy
Manufacturing, Motion Picture Production Theaters, Motion Picture
Distribution

MACHINERY (NON-AGRICULTURE, NON-CONSTRUCTION, NON-ELECTRONIC):
Industrial, Machine Tools, Steam Generators

MINING, STEEL, IRON AND NON PRECIOUS METALS: Coal, Copper, Lead,
Uranium, Zinc, Aluminum, Stainless Steel Integrated Steel, Ore Production,
Refractories, Steel Mill Machinery, Mini-mills, Fabricating, Distribution
and Sales

OIL AND GAS: Crude Producer, Retailer, Well Supply, Service and
Drilling

PERSONAL, FOOD AND MISCELLANEOUS SERVICES

PRINTING, PUBLISHING AND BROADCASTING: Graphic Arts, Paper, Paper
Products, Business Forms, Magazines, Books, Periodicals, Newspapers,
Textbooks, Radio, T.V., Cable Broadcasting Equipment

CARGO TRANSPORT: Rail, Shipping, Railroads, Rail-car builders, Ship
Builders, Containers, Container Builders, Parts, Overnight Mail, Trucking,
Truck Manufacturing, Trailer Manufacturing, Air Cargo, Transport

RETAIL STORES: Apparel, Toy, Variety, Drugs, Department, Mail Order
Catalog, Showroom

TELECOMMUNICATIONS: Local, Long Distance, Independent, Telephone,
Telegraph, Satellite, Equipment, Research, Cellular

TEXTILES AND LEATHER: Producer, Synthetic Fiber, Apparel Manufacturer,
Leather Shoes

PERSONAL TRANSPORTATION: Air, Bus, Rail, Car Rental

UTILITIES: Electric, Water, Hydro Power, Gas, Diversified

SOVEREIGNS: Semi-sovereigns, Canadian Provinces, Supra-national
Agencies

Where the Fund sells an asset and agrees to repurchase such asset in the
future, the Discounted Value of such asset will constitute a Moody's Eligible
Asset and the amount the Fund is required to pay upon repurchase of such asset
will count as a liability for the purposes of the ATP Basic Maintenance Amount.
Where the Fund purchases an asset and agrees to sell it to a third party in the
future, cash receivable by the Fund thereby will constitute a Moody's Eligible
Asset if the long-term debt of such other party is rated at least A2 by Moody's
and such agreement has a term of 30 days or less; otherwise the Discounted Value
of such asset will constitute a Moody's Eligible Asset. For the purposes of
calculation of Moody's Eligible Assets, portfolio securities which have been
called for redemption by the issuer thereof are valued at the lower of Market
Value or the call price of such portfolio securities.

Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent that it has been irrevocably deposited for the
payment of (i)(A) through (i)(F) under the definition of ATP Basic Maintenance
Amount (see "Description of Capital Stock-Asset Maintenance") or it is subject
to any material lien, mortgage, pledge, security interest or security agreement
of any kind (collectively, "Liens"), except for (a) Liens which are being
contested in good faith by appropriate proceedings and which Moody's has
indicated to the Fund will not affect the status of such asset as a Moody's
Eligible Asset, (b) Liens for taxes that are not then due and

payable or that can be paid thereafter without penalty, (c) Liens to secure
payment for services rendered or cash advanced to the Fund by its investment
adviser, the Fund's custodian, transfer agent or registrar or the auction agent
for the ATP (the "Auction Agent") and (d) Liens by virtue of any repurchase
agreement.

The effect of the foregoing discount factors may be to cause the Fund to
invest in higher-rated securities than it would if it were not required to
maintain specified asset coverage on a discounted basis. This may have the
effect of reducing the yield on the portfolio. See "Risk Factors and Special
Considerations."

PREFERRED STOCK. Under current Moody's guidelines, portfolio securities
that are preferred stocks will not be included in the calculation of Discounted
Value of the Fund's portfolio unless (a) dividends on such preferred stock are
cumulative, (b) such securities provide for the periodic payment of dividends
thereon in cash in U.S. dollars and do not provide for conversion or exchange
into, or have warrants attached entitling the holder to receive, equity capital
at any time over the respective lives of such securities, (c) the issuer of such
a preferred stock has common stock listed on either the New York Stock Exchange
or the American Stock Exchange, (d) the issuer of such a preferred stock has a
senior debt rating from Moody's of Baal or higher or a preferred stock rating
from Moody's of Baa3 or higher and (e) such preferred stock has paid consistent
cash dividends in U.S. dollars over the last three years or has a minimum rating
of A1 (if the issuer of such preferred stock has other preferred issues
outstanding that have been paying dividends consistently for the last three
years, then a preferred stock without such a dividend history would also be
eligible). In addition, the preferred stocks must have the following
diversification requirements: (x) the preferred stock issue must be greater than
$50 million and (y) the minimum holding by the Fund of each issue of preferred
stock is $500,000 and the maximum holding of preferred stock of each issue is $5
million. In addition, preferred stocks issued by transportation companies will
not be considered as Moody's Eligible Assets.

The Moody's Discount Factors for Moody's Eligible Assets that are preferred
stock are (a) 152% for utility preferred stocks, (b) 197% for
industrial/financial preferred stocks and (c) 350% for auction rate preferred
stocks.

OTHER MOODY'S ELIGIBLE ASSETS. In addition to corporate debt securities and
preferred stocks which satisfy the above requirements, Moody's Eligible Assets
also include the following:

(i) cash (including, for this purpose, interest and dividends due
on assets rated (A) Baa3 or higher by Moody's if the payment date is within
five business days of the date on which the value of the portfolio is being
determined for purposes of determining compliance with Moody's or Fitch's
investment guidelines (a "Valuation Date")), (B) A2 or higher if the
payment date is within thirty days of the Valuation Date, and (C) A1 or
higher if the payment date is within the Exposure Period and receivables
for Moody's Eligible Assets sold if the receivable is due within five
business days of the Valuation Date, and if the trades which generated such
receivables are (A) settled through clearing house firms with respect to
which the Fund has received prior written authorization from Moody's or
(B)(1) with counterparties having a Moody's long-term debt rating of at
least Baa3 or (2) with counterparties having a Moody's short-term money
market instrument rating of at least Prime-1;

(ii) short-term money market instruments (as defined by Moody's),
so long as (A) such securities are rated at least Prime-1, (B) in the case
of demand deposits, time deposits and overnight funds, the supporting
entity is rated at least A2, or (C) in all other cases, the supporting
entity (1) is rated A2 and the security matures within one month, (2) is
rated Al and the security matures within three months, or (3) is rated at
least Aa3 and the security matures within six months; provided, however,
that for purposes of this definition, such instruments (other than
commercial paper rated by S&P and not rated by Moody's) need not meet any
otherwise applicable S&P rating criteria;

(iii) U.S. Treasury Securities and Treasury Strips (as defined by
Moody's); and

(iv) financial contracts, as such term is defined in Section
3(c)(2)(B)(ii) of the 1940 Act, may be included in Moody's Eligible Assets,
but, with respect to any financial contract, only upon receipt by the Fund
of a writing from Moody's specifying any conditions on including such
financial contract in Moody's Eligible Assets and assuring the Fund that
including such financial contract in the manner so specified would not
affect the credit rating assigned by Moody's to the ATP.

A Moody's Discount Factor of 100% will be applied to cash. The Moody's
Discount Factor applied to Moody's Eligible Assets that are short-term money
instruments (as defined by Moody's) will be (a) 100%, so long as portfolio
securities mature or have a demand feature at par exercisable within 41 days of
the relevant valuation date (the "Exposure Period"), (b) 115%, so long as such
portfolio securities mature or have a demand feature at par not exercisable
within the Exposure Period, and (c) 125%, if such securities are not rated by
Moody's, so long as such portfolio securities are rated at least A-1 +/AA or
SP-1 +/AA by S&P and mature or have a demand feature at par exercisable within
the Exposure Period.

The Moody's Discount factors for Moody's Eligible Assets that are U.S.
Treasury Securities and U.S. Treasury Strips are as follows:

U.S. TREASURY SECURITIES:

REMAINING TERM TO MATURITY DISCOUNT FACTOR
-------------------------- ---------------

1 year or less 107%
2 years or less (but longer than 1 year) 113
3 years or less (but longer than 2 years) 118
4 years or less (but longer than 3 years) 123
5 years or less (but longer than 4 years) 128
7 years or less (but longer than 5 years) 135
10 years or less (but longer than 7 years) 141
15 years or less (but longer than 10 years) 146
20 years or less (but longer than 15 years) 154
30 years or less (but longer than 20 years) 154

U.S. TREASURY STRIPS:

REMAINING TERM TO MATURITY DISCOUNT FACTOR
-------------------------- ---------------

1 year or less 107%
2 years or less (but longer than 1 year) 114
3 years or less (but longer than 2 years) 120
4 years or less (but longer than 3 years) 127
5 years or less (but longer than 4 years) 133
7 years or less (but longer than 5 years) 145
10 years or less (but longer than 7 years) 159
15 years or less (but longer than 10 years) 184
20 years or less (but longer than 15 years) 211
30 years or less (but longer than 20 years) 236

FITCH AAA RATING GUIDELINES

For purposes of calculating the Discounted Value of the Fund's portfolio
under current Fitch guidelines, the fair market value of portfolio securities
eligible for consideration under such guidelines ("Fitch Eligible Assets") must
be discounted by certain discount factors set forth below (" Fitch Discount
Factors"). The discounted value of a portfolio security under the Fitch
guidelines ("Discounted Value") is the market value thereof determined as
specified by Fitch ("Market Value") divided by the Fitch Discount Factor. The
Fitch Discount Factor with respect to securities other than those described
below will be the percentage provided in writing by Fitch.

DEBT SECURITIES. Under current Fitch guidelines, securities will not be
deemed "Debt Securities" includable in the calculation of the Discounted Value
of the Fund's portfolio unless (a) such securities are rated CCC or higher by
Fitch or, if unrated by Fitch, rated Caa or higher by Moody's and CCC or higher
by S&P; (b) such securities

provide for the periodic payment of interest in cash in U.S. dollars; (c) such
securities do not provide for conversion or exchange into equity capital at any
time over their lives; (d) such securities have been registered under the
Securities Act or are Rule 144A Securities as determined by the Fund's adviser
acting subject to the supervision of the Fund's Board of Directors; (e) such
securities are issued by (1) a U.S. corporation, (2) a corporation domiciled in
Argentina, Australia, Brazil, Chile, France, Germany, Italy, Japan, Korea,
Mexico, Spain, or the United Kingdom (the "Approved Foreign Nations"), (3) the
government of any Approved Foreign Nation or any of its agencies,
instrumentalities or political subdivisions (the debt securities of Approved
Foreign Nation issuers being referred to collectively as "Foreign Bonds"), (4) a
corporation domiciled in Canada or (5) the Canadian government or any of its
agencies, instrumentalities or political subdivisions (the debt securities of
Canadian issuers being referred to collectively as "Canadian Bonds"); and (f) in
the case of Foreign and Canadian Bonds, such securities are denominated in U.S.
dollars. Foreign Bonds held by the Fund will qualify as Fitch Eligible Assets
only up to a maximum of 20% of the aggregate Market Value of all assets
constituting Fitch Eligible Assets. Similarly, Canadian Bonds held by the Fund
will qualify as Fitch Eligible Assets only up to a maximum of 20% of the
aggregate Market Value of all assets constituting Fitch Eligible Assets.
Notwithstanding the limitations in the two preceding sentences, Foreign Bonds
and Canadian Bonds held by the Fund will qualify as Fitch Eligible Assets only
up to a maximum of 30% of the aggregate Market Value of all assets constituting
Fitch Eligible Assets. In addition, bonds which are issued in connection with a
reorganization under U.S. federal bankruptcy law ("Reorganization Bonds") will
be considered Debt Securities constituting Fitch Eligible Assets if (a) they are
rated CCC or higher by Fitch or, if unrated by Fitch, rated Caa or higher by
Moody's and CCC or higher by S&P; (b) they provide for periodic payment of
interest in cash in U.S. dollars; (c) they do not provide for conversion or
exchange into equity capital at any time over their lives; (d) they have been
registered under the Securities Act or are eligible for trading under Rule 144A
as determined by the Fund's adviser acting subject to the supervision of the
Fund's Board of Directors; (e) they were issued by a U.S. corporation; and (f)
at the time of purchase at least one year had elapsed since the issuer's
reorganization. Reorganization Bonds may also be considered Debt Securities
constituting Fitch Eligible Assets if they have been approved by Fitch, which
approval shall not be unreasonably withheld.

The discounted value of any Fitch Eligible Assets that is a corporate debt
security constituting a Fitch Eligible Asset (see "Corporate Debt Securities,"
above) is the percentage determined by reference to (i) the rating on such asset
(i.e., whether it is a Type I, Type II, Type III, Type IV, Type V, Type VI or
Type VII Corporate Bond as defined below) and (ii) the remaining term to
maturity of such assets, in accordance with the table set forth below. However,
the Fitch Discount Factor that will be applied to: (A) Rule 144A Securities will
be (i) 110% of the Fitch Discount Factor which would apply were the securities
registered under the Securities Act, if such securities are from issues of $100
million or less and (ii) the Fitch Discount Factor which would apply were the
securities registered under the Securities Act, if such securities are from
issues of more than $100 million and (B) Foreign Bonds will be 120% of the Fitch
Discount Factor which would apply were the securities issued by a U.S.
corporation:

Type I Debt Securities with remaining maturities of:

less than or equal to 2 years 1.16
greater than 2 years, but less than or equal to 4 years 1.26
greater than 4 years, but less than or equal to 7 years 1.40
greater than 7 years, but less than or equal to 12 years 1.44
greater than 12 years, but less than or equal to 25 years 1.48
greater than 25 years, but less than or equal to 30 years 1.52

Type II Debt Securities with remaining maturities of:

less than or equal to 2 years 1.25
greater than 2 years, but less than or equal to 4 years 1.26
greater than 4 years, but less than or equal to 7 years 1.43
greater than 7 years, but less than or equal to 12 years 1.44
greater than 12 years, but less than or equal to 25 years 1.51
greater than 25 years, but less than or equal to 30 years 1.56

Type III Debt Securities with remaining maturities of:

less than or equal to 2 years 1.25
greater than 2 years, but less than or equal to 4 years 1.29
greater than 4 years, but less than or equal to 7 years 1.46
greater than 7 years, but less than or equal to 12 years 1.50
greater than 12 years, but less than or equal to 25 years 1.55
greater than 25 years, but less than or equal to 30 years 1.60

Type IV Debt Securities with remaining maturities of:

less than or equal to 2 years 1.27
greater than 2 years, but less than or equal to 4 years 1.32
greater than 4 years, but less than or equal to 7 years 1.52
greater than 7 years, but less than or equal to 12 years 1.57
greater than 12 years, but less than or equal to 25 years 1.63
greater than 25 years, but less than or equal to 30 years 1.69

Type V Debt Securities with remaining maturities of:

less than or equal to 2 years 1.32
greater than 2 years, but less than or equal to 4 years 1.36
greater than 4 years, but less than or equal to 7 years 1.59
greater than 7 years, but less than or equal to 12 years 1.65
greater than 12 years, but less than or equal to 25 years 1.72
greater than 25 years, but less than or equal to 30 years 1.80

Type VI Debt Securities with remaining maturities of:

less than or equal to 2 years 1.37
greater than 2 years, but less than or equal to 4 years 1.40
greater than 4 years, but less than or equal to 7 years 1.67
greater than 7 years, but less than or equal to 12 years 1.74
greater than 12 years, but less than or equal to 25 years 1.82
greater than 25 years, but less than or equal to 30 years 1.91

Type VII Debt Securities with remaining maturities of:

less than or equal to 2 years 1.37
greater than 2 years, but less than or equal to 4 years 1.64
greater than 4 years, but less than or equal to 7 years 2.28
greater than 7 years, but less than or equal to 12 years 2.49
greater than 12 years, but less than or equal to 25 years 2.74
greater than 25 years, but less than or equal to 30 years 3.06

For purposes of the foregoing:

"Type I Debt Securities" means Debt Securities (as defined above) rated
either AAA by Fitch or, if not rated by Fitch, rated AAA by S&P and Aaa by
Moody's;

"Type II Debt Securities" means Debt Securities rated either at least AA-
by Fitch or, if not rated by Fitch, rated at least AA- by S&P and at least Aa3
by Moody's which do not constitute Type I Debt Securities;

"Type III Debt Securities" means Debt Securities rated either at least A-
by Fitch or, if not rated by Fitch, rated at least A- by S&P and at least A3 by
Moody's which do not constitute Type I or Type II Debt Securities;

"Type IV Debt Securities" means Debt Securities rated either at least BBB-
by Fitch or, if not rated by Fitch, rated at least BBB- by S&P and at least Baa3
by Moody's which do not constitute Type I, Type II or Type III Debt Securities;

"Type V Debt Securities" means Debt Securities rated either at least BB- by
Fitch or, if not rated by Fitch, rated at least BB- by S&P and at least Ba3 by
Moody's which do not constitute Type I, Type II, Type III or Type IV Debt
Securities;

"Type VI Debt Securities" means Debt Securities rated either at least B- by
Fitch or, if not rated by Fitch, rated at least B- by S&P and at least B3 by
Moody's which do not constitute Type I, Type II, Type III, Type IV or Type V
Debt Securities; and

"Type VII Debt Securities" means Debt Securities rated either at least CCC
by Fitch or, if not rated by Fitch, rated at least CCC by S&P and at least Caa
by Moody's which do not constitute Type I, Type II, Type III, Type IV, Type V or
Type VI Debt Securities.

In addition, portfolio holdings as described below must be within the
following diversification and issue size requirements in order to be included in
Fitch Eligible Assets:

MAXIMUM SINGLE MAXIMUM SINGLE MINIMUM
ISSUER INDUSTRY ISSUE SIZE
TYPE OF CORPORATE BOND (%)(1,2) (%)(2,3,6) ($ IN MILLIONS)
---------------------- -------- ---------- --------------

Type I 100% 100% $ 100
Type II 20 75 100
Type III (4) 10 50 100
Type IV 6 25 100
Type V 4 16 50(5)
Type VI 3 12 50(5)
Type VII 2 8 50(5)

See accompanying notes

----------
(1) Companies subject to common ownership of 25% or more are considered as one
name.

(2) Percentages represent a portion of the aggregate Market Value of Debt
Securities.

(3) Industries are determined according to industry classifications specified
by Fitch ("Fitch Industry Classifications") (see below).

(4) Includes Short Term Money Market Instruments which do not constitute Type I
or Type II Debt Securities and which have a maturity greater than the
Exposure Period.

(5) Collateral bonds from issues ranging from $50 million to $100 million are
limited to 20% of the collateral pool.

(6) Foreign and Canadian Bonds issued by governments of the Approved Foreign
Nations and Canada or any of their agencies, instrumentalities, or
political subdivisions assigned to the "Sovereigns" industry classification
are not subject to any maximum single industry concentration limitation.

The Fitch Industry Classifications, for the purposes of determining Fitch
Eligible Assets, mean the following industry classifications, determined with
respect to particular issues in the discretion of the Fund:

Aerospace & Defense
Automobiles
Banking, Finance & Insurance
Building & Materials
Chemicals
Computers & Electronics
Consumer Products
Energy
Environmental Services
Farming & Agriculture
Food, Beverage & Tobacco
Healthcare & Pharmaceuticals
Industrial Machinery
Media, Leisure & Entertainment
Metals & Mining
Miscellaneous
Paper & Forest Products
Retail
Sovereigns
Textiles & Furniture
Transportation
Utilities

OTHER FITCH ELIGIBLE ASSETS. Other Fitch Eligible Assets include cash,
certain receivables for Fitch Eligible Assets, interest and dividends due on
certain assets rated not lower than Baa3 by Moody's or BBB- by S&P, U.S.
Treasury Securities (as defined by Fitch) and Short-Term Money Market
Instruments (as defined by Fitch). The Fitch Discount Factors for Fitch Eligible
Assets that are U.S. Treasury Securities are as follows:

U.S. TREASURY SECURITIES with remaining maturities of:

less than or equal to 1 year 1.06
greater than 1 years, but less than or equal to 2 years 1.11
greater than 2 years, but less than or equal to 5 years 1.16
greater than 5 years, but less than or equal to 15 years 1.24
greater than 25 years, but less than or equal to 30 years 1.26

The Fitch Discount Factor applied to short-term portfolio securities will
be (A) 100%, so long as such portfolio securities mature or have a demand
feature at par exercisable within the Exposure Period and, (B) 125%, so long as
such portfolio securities neither mature nor have a demand feature at par
exercisable within the Exposure Period. A Fitch Discount Factor of 100% will be
applied to cash.

FINANCIAL CONTRACTS, as such term is defined in Section 3(c)(2)(B)(ii) of
the 1940 Act, may be included in Fitch Eligible Assets, but, with respect to any
financial contract, only upon receipt by the Fund of a writing from Fitch
specifying any conditions on including such financial contract in Fitch Eligible
Assets and assuring the Fund that including such financial contract in the
manner so specified would not affect the credit rating assigned by Fitch to the
ATP.

Under Fitch's current guidelines, portfolio securities that are preferred
stocks will not be deemed Fitch Eligible Assets.

When the Fund sells an asset and agrees to repurchase such asset in the
future, the Discounted Value of such asset will constitute a Fitch Eligible
Asset and the amount the Fund is required to pay upon repurchase of such asset
will count as a liability for the purposes of the ATP Basic Maintenance Amount.
Where the Fund purchases an asset and agrees to sell it to a third party in the
future, cash receivable by the Fund thereby will constitute a Fitch's Eligible
Asset if the long-term debt of such other party is rated at least A2 by Moody's
and A by S&P and such

agreement has a term of 30 days or less; otherwise the Discounted Value of such
asset will constitute a Fitch Eligible Asset.

Notwithstanding the foregoing, an asset will not be considered a Fitch
Eligible Asset to the extent that it has been irrevocably deposited for the
payment of (i)(A) through (i)(F) under the definition of ATP Basic Maintenance
Amount (see "Description of Capital Stock-Asset Maintenance") or it is subject
to any material Lien, except for (a) Liens which are being contested in good
faith by appropriate proceedings and which Fitch has indicated to the Fund will
not affect the status of such asset as a Fitch Eligible Asset, (b) Liens for
taxes that are not then due and payable or that can be paid thereafter without
penalty, (c) Liens to secure payment for services rendered or cash advanced to
the Fund by its investment adviser, the Fund's custodian, transfer agent or
registrar or the Auction Agent and (d) Liens by virtue of any repurchase
agreement.

The Board of Directors may, without approval of the Fund's stockholders,
from time to time amend, alter or repeal any or all of the definitions which
relate to the Moody's and Fitch guidelines and which generally establish the
investment guidelines for the Fund's portfolio in the event the Fund receives
written confirmation from the appropriate rating agency that any such amendment,
alteration or repeal would not impair the rating then assigned to the ATP by
such rating agency. In addition, the Board of Directors, without the vote or
consent of the Fund's stockholders, may from time to time adopt, amend, alter or
repeal any or all of additional or other definitions or add covenants and other
obligations of the Fund (e.g., maintenance of a minimum liquidity level) or
confirm the applicability of covenants and other obligations in connection with
obtaining or maintaining the rating of Moody's, Fitch or any other rating agency
with respect to the ATP. See "Description of Capital Stock - Voting Rights."

RISK FACTORS AND SPECIAL CONSIDERATIONS

An investment in the Fund is subject to a number of risks and special
considerations, including the following:

HIGH-YIELD, HIGH-RISK INVESTMENTS

The Fund is designed for long-term investors who can accept the risks
associated with its investment strategy and its leveraged structure. Investors
should not rely on the Fund for their short-term financial needs. The value of
the lower-quality securities in which the Fund invests will be affected by
interest rate levels, general economic conditions, specific industry conditions
and the creditworthiness of the individual issuer. Although the Fund seeks to
reduce risk by portfolio diversification, credit analysis and attention to
trends in the economy, industries and financial markets, these efforts will not
eliminate risk.

The Fund will generally invest in securities that are rated below
investment grade by recognized rating agencies or that are non-rated. The values
of these lower-quality securities tend to reflect individual corporate
developments or negative economic changes to a greater extent than
higher-quality securities, which react primarily to fluctuations in market
interest rates. Economic uncertainty and change generally results in increased
volatility in the market prices and yields of lower-quality securities and thus,
in the NAV of the Common Stock.

Securities rated below investment grade are considered by rating agencies,
on balance, to be predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation and
thus are generally considered to involve greater credit risk than securities in
the higher-rating categories. Changes by rating agencies in their ratings of any
security in the Fund's portfolio may affect the value of the Fund's investments.
Changes in the value of portfolio securities will not necessarily affect cash
income derived from those securities, but will affect the NAV of the Common
Stock. The credit ratings issued by rating agencies may not fully reflect the
true risks of an investment. For example, credit ratings typically evaluate the
safety of principal and interest payments, not market value risk. Also, rating
agencies may be late in changing a credit rating to reflect changes in economic
or company conditions that affect a security's market value. Although these
ratings may be an initial screen in selecting investments, the Fund will rely
primarily on the Investment Adviser's judgment, analysis and experience in
evaluating the creditworthiness of an issuer. (See Appendix A for a description
of credit agency ratings of lower-quality securities).

The lower-quality securities held by the Fund are frequently subordinated
to "other debt" owed by the issuing entity. This generally means that if the
Fund holds a security issued by a company that is unable to pay all of its
obligations, the holders of the company's "senior debt," such as secured bank
loans, will be paid before the Fund. The Fund may incur additional expenses if
it is required to seek recovery upon a payment default on its portfolio
holdings.

Some of the lower-quality securities in which the Fund invests were issued
to raise funds in connection with the acquisition of companies in so-called
"leveraged buy-out" transactions. The highly leveraged capital structure of such
issuers may make them especially vulnerable to adverse changes in economic
conditions.

Generally, when interest rates rise, the value of fixed-rate debt
securities tends to decrease. On the other hand, when interest rates fall, the
value of these security obligations tends to increase. If an issuer of a
lower-quality security containing redemption or call rights exercises these
rights when interest rates are declining, the Fund would have to reinvest the
proceeds of the redeemed securities at current interest rates, which could
result in a decreased return for holders of Common Stock.

The trading market for lower-quality securities tends to be less liquid
than the market for higher-rated securities. At times, a major portion of an
issue of lower-quality securities may be held by relatively few institutional
purchasers. Although the Fund may consider securities to be liquid because of
the availability of an institutional market, under negative market conditions or
in the event of negative changes in the financial condition of the issuer, the
Fund may find it more difficult to sell its securities or may be able to sell
its securities only at prices lower than if the securities were more widely
held. In those circumstances, the Fund may also find it more difficult to
determine the correct value of securities when computing the Fund's NAV. The
Fund, in most instances, utilizes an independent pricing service to determine
the value of its securities. Securities for which market quotations are not
readily available will be valued at fair value as determined in good faith by or
as directed by the Board of Directors of the Fund.

The entire high-yield market can experience sudden and sharp price swings
due to a variety of factors, such as changes in economic forecasts, stock market
activity, large sustained sales by institutional investors, a high profile
default, or a change in the market's psychology. This type of volatility is
usually associated more with the equity markets than fixed income securities,
but junk bond investors should be prepared for it.

LEVERAGE

The Fund is subject to significant risks as a result of its focus on
investments in so called "junk bonds." See "High-Yield, High-Risk Investments"
below. As the Fund's historical performance shows, the Fund's leveraged capital
structure magnifies these risks, particularly in a declining market, while
increasing the possibility for superior performance in a rising market. See "The
Fund."

The Fund's leveraged capital structure creates special risks not associated
with unleveraged funds having similar investment objectives and policies. These
risks include a higher volatility of the NAV of the Common Stock and potentially
more volatility in the market price of the Common Stock.

The ATP has prior claim to the income of the Fund and against the assets of
the Fund in any potential liquidation. If the investment performance of the
assets purchased with the proceeds of the ATP is less than the cost of the ATP
and any related hedging arrangements, the NAV of the Common Stock will decrease
more quickly than would otherwise be the case. Under these circumstances, Common
Stock dividends may be reduced or eliminated. On the other hand, if the
investment performance of those assets exceeds the cost of the leverage, the NAV
of the Common Stock will increase more quickly than would otherwise be the case
and Common Stock dividends may be increased. Changes in the NAV of the Common
Stock tend to be reflected in its market price.

You, as holders of Common Stock, will bear any decline in the NAV of the
Fund's investments. In an extreme case, if the Fund's current investment income
were not sufficient to meet the cost of any leverage, it could be necessary for
the Fund to liquidate certain of its investments, thereby reducing the NAV of
the Common Stock.

In addition, a decline in the value of the Fund's investments may have serious
consequences under the Fund's asset coverage requirements, as discussed below.

The following table illustrates the effect of leverage on the return of a
holder of Common Stock. It assumes 70 million shares of Common Stock and $100
million of ATP currently outstanding, and a Fund portfolio of approximately $250
million. The purpose of the table is to assist you in understanding the effect
of leverage. The figures appearing in the table are hypothetical and actual
returns may be greater or lesser than those appearing in the table.

Assumed Return on
Portfolio (net of
expenses and costs of
leverage) -10% -5% 0% 5% 10%

Return to Holder of
Common Stock* -16.8% -8.4% 0% 8.4% 16.8%

DILUTION

You may experience an immediate dilution of the NAV of your shares of
Common Stock. This is because the number of shares of Common Stock outstanding
after the Offer will increase in a greater percentage than the increase in the
size of the Fund's assets. For example, assuming that all Rights are exercised
at the Estimated Subscription Price of $_______, the Fund's NAV per share (after
payment of the estimated offering expenses) would be reduced by approximately
$____ per share.

The fact that the Rights are transferable may reduce the effects of any
dilution as a result of the Offer. You can transfer or sell your Rights. The
cash received from the sale of Rights is partial compensation for any possible
dilution. The Fund cannot give any assurance that a market for the Rights will
develop or that the Rights will have any value.

You should also expect that if you do not fully exercise your Rights, you
will, at the completion of the Offer, own a smaller proportional interest in the
Fund than would otherwise be the case. The Fund cannot state precisely the
amount of any such dilution in share ownership because the Fund does not know at
this time what proportion of the Shares will be subscribed.

ASSET COVERAGE REQUIREMENTS

The Fund is required to meet certain financial tests imposed by the 1940
Act and under the Rating Agency Guidelines. These are known as "asset coverage
requirements." Higher-quality assets are given greater credit under the Rating
Agency Guidelines, so the overall portfolio quality of the Fund may be higher,
and the overall rate of return on portfolio holdings may be lower, than if the
Fund were unleveraged. See "Description of Capital Stock-Asset Maintenance."

Failure to meet any of the asset coverage requirements would have very
serious consequences for the Fund. The Fund would not be allowed to declare
dividends or other distributions on the Common Stock until it returned to
compliance. Failure to pay dividends or distributions could cause serious tax
problems for the Fund. See

"Taxation." In an extreme situation, failure to pay two years worth of dividends
on the ATP would give the holders of the ATP the right to elect a majority of
the Directors until all accrued dividends had been provided for or paid.

To restore or maintain compliance with the asset coverage requirements, the
Fund might have to redeem some or all of the ATP. Redeeming the ATP would reduce
the Fund's leverage and could negatively affect potential returns on the Common
Stock. An asset coverage problem under the Rating Agency Guidelines might also
be addressed by changing the composition of its portfolio. This would probably
involve additional transaction costs and losses or gains on the sale of
portfolio securities. In addition, the value of higher-quality assets may react
with greater volatility to interest rate changes than lower-quality assets.
Later, if market conditions improved and high-yielding securities were available
at attractive prices, the Rating Agency Guidelines might restrict the
redeployment of assets from higher-quality assets to lower-quality,
higher-yielding assets. Also, redeploying cash as the value of the Fund's assets
rise involves significant transaction costs and possible delays, which further
inhibits the Fund's ability to take advantage of a favorable investment
environment. See "The Fund."

PREMIUM/DISCOUNT FROM NET ASSET VALUE

The Fund is a closed-end investment company. Closed-end investment
companies differ from open-end investment companies (commonly referred to as
"mutual funds") in that closed-end investment companies have a fixed capital
base, whereas open-end companies issue securities redeemable at NAV at any time
at the option of the stockholder and typically engage in a continuous offering
of their shares. Shares of closed-end funds frequently trade at a market price
that is less than the value of the net assets attributable to those shares. The
possibility that shares of the Fund will trade at a discount from NAV is a
separate risk from the risk that the Fund's NAV will decrease. However, it
should be noted that in some cases, shares of closed-end funds may trade at a
premium. The Fund's shares have traded in the market above, at, and below NAV
since the commencement of the Fund's operations. [During the past three years,
the Fund's shares have generally traded in the market at a premium to NAV.] See
"Net Asset Value and Market Price Information" for the ranges of the market
prices and the ranges of the net asset values of the shares of Common Stock for
each calendar quarter since 1993. The Fund cannot predict whether the Shares
will trade at a premium or a discount in the future.

The risk of purchasing shares of a closed-end investment company that might
trade at a discount is more pronounced for investors who expect to sell their
shares in a relatively short period of time. For these investors, any gain or
loss on their investments may more dependent upon the existence of a premium or
discount than upon portfolio performance.

GIVEN THE RISKS INHERENT IN THE FUND, INVESTMENT IN SHARES SHOULD NOT BE
CONSIDERED A COMPLETE INVESTMENT PROGRAM AND IS NOT APPROPRIATE FOR ALL
INVESTORS. INVESTORS SHOULD CAREFULLY CONSIDER THEIR ABILITY TO ASSUME THESE
RISKS BEFORE EXERCISING RIGHTS.

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

The management of the Fund, including general supervision of the duties
performed by the Investment Adviser, is the responsibility of the Board of
Directors. The Board of Directors consists of five individuals, three of whom
are not "interested persons" as defined in the 1940 Act. During 2002, the
Directors of the Fund met five times.

Set forth below are the Directors of the Fund who are not "interested
persons" of the Fund within the meaning of Section 2(a)(19) of the 1940 Act,
(the "Non-Interested Directors") as well as their principal occupations for at
least the past five years, are as follows:

POSITIONS(S) PRINCIPAL OCCUPATION(S)
NAME AND AGE WITH THE FUND(1) DURING PAST 5 YEARS OTHER DIRECTORSHIPS
------------ ---------------- ------------------- -------------------

Joseph L. Bower Director since 1988 Professor, Harvard Business School since Director of Anika
Date of Birth: 09/21/38 1963--as Donald K. David Professor of Therapeutics, Inc., Sonesta
Business Administration since 1986, International Hotels
Senior Associate Dean, Chair of the Corporation, Loews
Doctoral Programs, Chair of the General Corporation (a conglomerate),
Management Area, and currently, Chair of and Brown Shoe Company, Inc.;
the General Manager Program; member and Independent General Partner
research fellow at the Institute of of ML-Lee Acquisition Funds,
Politics since 1966; faculty member of L.P.; and Trustee of TH
the John F. Kennedy School of Government Lee-Putnam Emerging
since 1969. Opportunities Portfolio.

Bernard J. Korman Director since 1987 Chairman of the Board of Directors of Director of Kramont Realty
Date of Birth: 10/13/31 Philadelphia Health Care Trust Trust, Omega Healthcare
(non-profit corporation supporting Investors, Inc. (real estate
healthcare delivery, education and investment trust), The Pep
research). Boys, Inc. (automotive
supplies), and Nutramax
Products, Inc. (a consumer
healthcare products company).

Ernest E. Monrad Director since 1988 Trustee since 1960 and Chairman of the Trustee of Century Shares
Date of Birth: 05/30/30 Trustees from 1969 to May 2001 of Trust and Century Small Cap
Northeast Investors Trust; Chairman, Select.
Assistant Treasurer and a Director since
1981 of Northeast Investors Growth Fund;
Director and Vice President of Northeast
Investment Management, Inc., and Director
of Northeast Management & Research
Company, Inc.

----------
(1) The Fund is not part of any fund complex.

The address of each Director is: c/o The New America High Income Fund, Inc., 33
Broad Street, Boston, Massachusetts 02109.

The Directors of the Fund who are "interested persons" of the Fund within
the meaning of Section 2(a)(19) of the 1940 Act (the "Interested Directors"), as
well as their principal occupations for at least the past five years, are set
forth below:

POSITIONS(S) PRINCIPAL OCCUPATION(S)
NAME AND AGE WITH THE FUND(1) DURING PAST 5 YEARS OTHER DIRECTORSHIPS
------------ ---------------- ------------------- -------------------

Robert F. Birch* Director and Private investor and consultant. Director of Hyperion Funds (4
Date of Birth: 03/12/36 President since 1992 funds), and Director of the
Brandywine Funds (3 funds).

Richard E. Floor* Director and Partner through his professional Director of Affiliated
Date of Birth: 08/03/40 Secretary since 1987 corporation with the law firm of Goodwin Managers Group, Inc.
Procter LLP, Boston, Massachusetts.

* Messrs. Birch and Floor are deemed to be "Interested Directors" of the Fund
because, in the case of Mr. Birch, he is the President of the Fund and, in the
case of Mr. Floor, he is the Secretary of the Fund and a partner, through his
professional corporation, of Goodwin Procter LLP, counsel to the Fund.

(1) The Fund is not part of any family of investment companies.

The address of each Director is: c/o The New America High Income Fund,
Inc., 33 Broad Street, Boston, Massachusetts 02109.

The Fund's Board of Directors consists of five members. Under the Fund's
Articles and the 1940 Act, holders of the ATP are entitled to elect two
Directors with the other three Directors elected by the holders of the Common
Stock and the ATP voting as a single class, except in certain circumstances. In
the event the Fund has no outstanding preferred stock, all of the Directors will
be elected by the holders of the Common Stock. Since the Fund's inception,
Messrs. Bower and Korman have been nominated for election as Directors by, and
have been elected as Directors by the holders of, the Fund's outstanding
preferred stock. Election of Directors is non-cumulative; accordingly, holders
of a majority of the outstanding shares of Common Stock and ATP or a majority of
the outstanding ATP may elect all of the Directors who are subject to election
by them.

EXECUTIVE OFFICER

Ellen E. Terry (date of birth: 04/09/59), Vice President and Treasurer of
the Fund since February 18, 1992, is the only executive officer of the Fund not
named in the above table of Directors who are interested persons of the Fund.
Ms. Terry served as Acting President and Treasurer of the Fund from October 1991
through February 18, 1992, and as Vice President of the Fund from February 1988
through February 1992. From 1987 to February 1992, Ms. Terry was employed by
Ostrander Capital Management, L.P., the former investment adviser of the Fund.
Ms. Terry's address is: c/o The New America High Income Fund, Inc., 33 Broad
Street, Boston, Massachusetts 02109. A Fund officer holds office until the
officer's successor is duly elected and qualified, until the officer's death or
until the officer's resignation or removal.

SHARE OWNERSHIP OF MANAGEMENT

The following table shows the beneficial ownership of the Fund's Common
Stock by the Fund's Directors at December 31, 2002, based on information
provided to the Fund by the Directors. No Director of the Fund owns shares of
the Fund's ATP.

DOLLAR RANGE* OF EQUITY
NAME OF DIRECTOR SECURITIES IN THE FUND(1)
---------------- -------------------------

NON-INTERESTED DIRECTORS
Joseph L. Bower $10,001-$50,000
Bernard J. Korman over $100,000
Ernest E. Monrad over $100,000

INTERESTED DIRECTORS
Robert F. Birch over $100,000
Richard E. Floor over $100,000

* Dollar range is based on the closing price of a share of the Fund quoted on
the Exchange at December 31, 2002.

(1) The Fund is not part of any family of investment companies.

As of [December 31, 2002], Joseph L. Bower, Bernard J. Korman, Ernest E.
Monrad, Robert F. Birch and Richard E. Floor owned [20,000], [507,309]
[271,900], [147,425] and [144,542], respectively, shares of the Fund's Common
Stock. As of that date, the Fund's Directors and officers as a group
beneficially owned [1,110,446] shares of the Fund's Common Stock, which
constitutes [1.60]% of the issued and outstanding shares of the Common Stock. No
Director or officer of the Fund owns shares of the Fund's ATP. At [April 30,
2003,] the following persons or entities owned of record more than 5% of the
outstanding shares of the Fund:

NAME AND ADDRESS OF THE OWNER NUMBER OF SHARES PERCENT OF SHARES

[_________________] [_________________] [_________________]

Except as noted above, the Fund does not know of any person who, as of [April
30, 2003,] beneficially owned more than 5% or more of the outstanding shares of
the Fund.

COMPENSATION OF DIRECTORS AND OFFICERS

During the fiscal year ended December 31, 2002, the Fund paid each Director
a fee of $24,000 per year plus $2,000 per Directors' meeting in which the
Director participated except in the case of telephonic Directors' meetings for
which the fee was $1,000, together with actual out-of-pocket expenses relating
to attendance at such meetings. In addition, Mr. Birch's compensation for
services rendered to the Fund in his capacity as President for the calendar year
ended December 31, 2002 was $100,000, and he currently receives an annual
retainer of $100,000 for his services to the Fund as President. Each member of
the Fund's Audit and Nominating Committee, which consists of the Fund's
non-interested Directors, receives $2,000 for each Audit and Nominating
committee meeting attended, other than meetings held on days on which there is
also a Directors' meeting. Directors of the Fund received for the fiscal year
ended December 31, 2002 aggregate remuneration of $165,000 exclusive of
compensation paid to Mr. Birch for his services rendered to the Fund in his
capacity as President. The following table summarizes the compensation paid to
the Directors and officers of the Fund for the fiscal year ended December 31,
2002. The Fund does not provide remuneration in the form of pension or
retirement benefits to any of its Directors or officers.

PENSION OR
RETIREMENT ESTIMATED
AGGREGATE BENEFITS ACCRUED ANNUAL BENEFITS TOTAL
COMPENSATION AS PART OF FUND UPON COMPENSATION
NAME OF DIRECTOR OR OFFICER FROM FUND EXPENSES RETIREMENT FROM FUND(1)
--------------------------- ------------ ---------------- --------------- ------------

NON-INTERESTED DIRECTORS

Joseph L. Bower $ 33,000 None none $ 33,000
Bernard J. Korman $ 33,000 None none $ 33,000
Ernest E. Monrad $ 33,000 None none $ 33,000

INTERESTED DIRECTORS/OFFICERS

Robert F. Birch $ 133,000 None none $ 133,000(2)
Richard E. Floor $ 33,000 None none $ 33,000
Ellen E. Terry $ 156,978 None none $ 156,978

----------
(1) The Fund is not part of any family of investment companies.
(2) Of this amount, $100,000 was compensation for service as President and
$33,000 was compensation for service as a Director.

The Fund's Articles and By-Laws provide that the Fund will indemnify its
Directors and officers against liabilities and expenses incurred in connection
with the performance of their duties on behalf of the Fund to the full

extent permitted under Maryland law, subject to the applicable requirements of
the 1940 Act. Maryland law generally permits a director or officer to be
indemnified with respect to any proceeding to which the director or officer was
made a party by reason of service in that capacity unless: (i) the director's or
officer's act or omission was material to the matter giving rise to the
proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty; (ii) the director or officer actually received an
improper personal benefit in money, property or services; or (iii) in the case
of any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. Under the 1940 Act, as
interpreted by the staff of the Commission, an indemnification provision is
consistent with the 1940 Act if it precludes indemnification for any liability,
whether or not there is an adjudication of liability, arising by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of duties
as described in Section 17(h) and (i) of the 1940 Act ("disabling conduct"). In
addition, the indemnification provision must set forth reasonable and fair means
for determining whether indemnification shall be made whereby "reasonable and
fair means" would include (1) a final decision on the merits by a court or other
body before which the proceeding was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling conduct, including a
dismissal for insufficiency of evidence, and (2) a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by reason
of disabling conduct, by (a) a vote of a majority of a quorum of Directors who
are neither "interested persons" of the Fund as defined in Section 2(a)(19) of
the 1940 Act nor parties to the proceeding, or (b) an independent legal counsel
in written opinion.

The Fund, at its expense, may in the future provide liability insurance for
the benefit of its Directors and officers.

COMMITTEES

The Board of Directors has an Audit and Nominating Committee, which it
created in February 2000 to succeed the Fund's Audit Committee. The Audit and
Nominating Committee is responsible for: (a) overseeing the audit process for
the Fund and considering any questions raised by the Fund's independent public
accountants concerning the Fund's financial reporting process, internal
controls, and compliance procedures, (b) supervising the nomination and election
of Directors who are not "interested persons" of the Fund, (c) reviewing on a
periodic basis the Fund's governance structures and procedures, (d) recommending
the selection of the Fund's independent public accountants, (e) reviewing the
scope and procedures of the year-end audit, (f) reviewing annual financial
statements, and (g) conferring with the Fund's independent public accountants.
The Audit and Nominating Committee is presently comprised of former members of
the Audit Committee, including Messrs. Korman and Monrad and Professor Bower,
each of whom is not an "interested person" of the Fund within the meaning of
Section 2(a)(19) of the 1940 Act. The Audit and Nominating Committee met three
times in 2002. The Audit and Nominating Committee will consider nominees for
Director recommended by stockholders when submitted in writing to the Fund's
Secretary at the Fund's address in accordance with criteria for submitting
stockholder proposals set forth in the Fund's By-Laws.

At its January 1999 meeting, the Directors established a Compensation
Committee. The Compensation Committee is responsible for: (a) monitoring and
revising as appropriate the compensation of Fund employees other than Mr. Birch,
subject to review by the Board as a whole and (b) monitoring Mr. Birch's
compensation as President of the Fund and making recommendations to the Board
regarding his compensation. Messrs. Monrad and Floor currently comprise the
Compensation Committee. The Compensation Committee met once during 2002.

HOLDINGS OF ATP AND COMMON STOCK

The Fund does not know of any person who beneficially owned more than 5% of
the outstanding shares of the Common Stock or the ATP at December 31, 2002. As
of such date, all Directors and officers of the Fund owned less than 1% of the
Common Stock of the Fund, and no Director or officer owned any of the ATP.

THE INVESTMENT ADVISER

T. Rowe Price, with its principal business address at 100 East Pratt
Street, Baltimore, Maryland 21202, has served as the Fund's investment adviser
since December 2, 2002. On December 2, 2002, the Fund terminated its investment
advisory agreement with Wellington Management Company, LLP ("Wellington
Management"), which

had served as investment adviser to the Fund since February 19, 1992. T. Rowe
Price is a registered investment adviser under the Investment Advisers Act of
1940, as amended, and is organized under the laws of Maryland. It is a wholly
owned subsidiary of T. Rowe Price Group, Inc. ("Price Group"), a publicly-traded
financial services holding company founded in 1937 by Thomas Rowe Price, Jr. The
address of Price Group is 100 East Pratt Street, Baltimore, Maryland 21202. As
of March 31, 2003, T. Rowe Price and its affiliates held discretionary authority
over approximately $139.9 billion of assets, including approximately $49.9
billion of fixed income securities of which approximately $7.2 billion
represented "high-yield" investments. T. Rowe Price has provided investment
advisory services to investment companies since 1937.

The Fund is managed by the Investment Adviser's Investment Advisory
Committee chaired by Mark J. Vaselkiv, a Vice President of T. Rowe Price and a
Portfolio Manager in the Fixed Income Department, heading taxable "high-yield"
bond management. Mr. Vaselkiv is primarily responsible for day-to-day management
of the Fund and works with the committee in developing and executing the Fund's
investment program. Mr. Vaselkiv has served in this capacity since the
Investment Adviser succeeded to the management of the Fund's portfolio on
December 2, 2002. He also serves as President of the T. Rowe Price High Yield
Fund and Chairman of its Investment Advisory Committee. Mr. Vaselkiv has managed
"high-yield" bond portfolios at T. Rowe Price for 15 years through a variety of
market conditions. Prior to joining T. Rowe Price, he was employed as a Vice
President, analyzing and trading "high-yield" debt securities, for Shenkman
Capital Management, Inc. in New York, and as a Private Placement Credit Analyst
in the Capital Markets Group of Prudential Insurance Company. Mr. Vaselkiv
earned a B.A. in Political Science from Wheaton College, Illinois, and an M.B.A.
in Finance from New York University, New York.

CONSIDERATIONS OF THE BOARD OF DIRECTORS. In reaching a decision to engage
T. Rowe Price as the Fund's investment adviser, the Board of Directors reviewed
information derived from a number of sources and covering a range of issues. The
Directors concluded that (a) T. Rowe Price had a record of superior performance
in the "high-yield" asset class; (b) T. Rowe Price demonstrated an appropriate
awareness of the special requirements associated with the Fund's leveraged
structure; (c) T. Rowe Price is a large, well capitalized organization with
substantial resources and qualified personnel; and (d) T. Rowe Price's
disciplined but flexible investment approach is appropriate for the Fund. The
Board of Directors also considered the advisory fee under the Advisory Agreement
and information on fees charged by other investment advisers for comparable
services. The Board of Directors noted that the fee to be charged by T. Rowe
Price under the Advisory Agreement would be lower than the advisory fee rates
charged by most of the other investment advisers, although higher than the
advisory fee rates of some of the other investment advisers, including
Wellington Management. Taking into account this review, as well as the nature
and the quality of the services to be provided by T. Rowe Price, the Board of
Directors determined that the advisory fee rate of T. Rowe Price was reasonable.
None of the Fund's Directors and officers are employed or otherwise affiliated
with T. Rowe Price.

The Directors' decision to replace Wellington Management with T. Rowe Price
was prompted primarily by the Directors' view that the Fund's performance over
recent periods had not met expectations. Before selecting T. Rowe Price as the
Fund's investment adviser, the Directors and Fund management solicited and
considered proposals from a range of investment advisory organizations with
experience investing in "high-yield" fixed income securities. In connection with
their final deliberations, the Directors reviewed additional materials provided
by T. Rowe Price in response to the Board's request, including information
regarding T. Rowe Price and its personnel, operations and financial condition.
Representatives of T. Rowe Price also met with Fund management and with the
Board of Directors and discussed T. Rowe Price's philosophy of management,
performance, expectations and method of operation as they would relate to the
Fund. Among other matters, the Directors also discussed with T. Rowe Price: (a)
T. Rowe Price's research methodology and the extent to which portfolio
management in T. Rowe Price's "high-yield" group had access to information and
analysis from T. Rowe Price's equity management group, (b) default rates in the
"high-yield" bond portfolios managed by T. Rowe Price, and (c) the special
considerations entailed in managing a leveraged capital structure such as the
Fund's. In addition, the Board of Directors reviewed and discussed the terms and
provisions of the Advisory Agreement.

Based on its review, the Board of Directors, including a majority of the
non-interested Directors, concluded that it was satisfied with the nature and
quality of the services to be provided by T. Rowe Price to the Fund and that the
advisory fee rate was reasonable in relation to such services. Accordingly, the
Board of Directors approved the

Advisory Agreement as being in the interests of the Fund's stockholders. The
non-interested Directors were represented by independent counsel who assisted
them in their deliberations.

ADVISORY AGREEMENT. The Investment Advisory Agreement between the
Investment Adviser and the Fund (the "Advisory Agreement") became effective on
December 2, 2002 following the termination of the advisory agreement with
Wellington Management, the former adviser. The Advisory Agreement provides that,
subject to the direction of the Board of Directors of the Fund and the
applicable provisions of the 1940 Act, the Investment Adviser is responsible for
the actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular investment rests with the Investment
Adviser, subject to review by the Board of Directors and compliance with the
applicable provisions of the 1940 Act. The Board of Directors, not the
Investment Adviser, is responsible for determining the amount and type of
leverage to which the Fund is subject, and for making any related hedging
arrangements.

The Investment Adviser is not dependent on any other party in providing the
investment advisory services required for the management of the Fund. The
Investment Adviser may, however, consider analyses from various sources,
including broker-dealers with which the Fund does business. The Advisory
Agreement provides that the Investment Adviser will, upon request of the Fund
but subject to availability, make available to the Fund office facilities,
equipment, personnel and services (other than as specifically set forth in the
Advisory Agreement). Such office facilities, equipment, personnel and services
will be billed to the Fund at Investment Adviser's cost.

Under the Advisory Agreement, the Investment Adviser receives a fee
equal to an annual rate of the Fund's Base Net Assets, based on the Fund's
average weekly NAV, equal to .50% on the first $50 million of Base Net
Assets, .40% on the next $50 million of Base Net Assets and .30% on Base Net
Assets in excess of $100 million. "Base Net Assets" means the Fund's net
assets attributable to the Fund's outstanding Common Stock and senior
securities within the meaning of Section 18 of the 1940 Act. Base Net Assets
includes the liquidation preference and principal amount attributable to the
Fund's senior securities (currently the ATP) but not accrued interest and
dividends relating to those senior securities. At December 31, 2002, the
Fund's Base Net Assets were $231,170,000 under this definition. The aggregate
dollar amount paid by the Fund to T. Rowe Price under the terms of the
Advisory Agreement from December 2, 2002 through December 31, 2002 was
$51,000. Under the prior investment advisory agreement with Wellington
Management, the aggregate dollar amounts paid by the Fund for the periods
January 1, 2000 through December 31, 2000, January 1, 2001 through December 31,
2001, and January 1, 2002 through December 2, 2002 were $1,039,000, $873,622,
and $635,000, respectively.

The Fund bears all costs of its operation other than those incurred by the
Investment Adviser under the Advisory Agreement. In particular, the Fund pays
investment advisory fees, the fees and expenses associated with the Fund's
administration, record keeping and accounting, fees and expenses for the
custodian of the Fund's assets, legal, accounting and auditing fees, taxes,
expenses of preparing prospectuses and stockholder reports, registration fees
and expenses, fees and expenses for the transfer and dividend disbursing agent,
the compensation and expenses of the Directors who are not otherwise employed by
or affiliated with the Investment Adviser or any of its affiliates, and any
extraordinary expenses.

At a meeting held on October 17, 2002, the Board of Directors (including
all Directors who are not "interested persons" of the Fund, as defined in the
1940 Act) unanimously approved the Advisory Agreement for a two-year period
commencing December 2, 2002. The Advisory Agreement was subsequently approved by
the Fund's stockholders at a meeting held on February 13, 2003. The Advisory
Agreement will remain in effect until December 2, 2004, and thereafter year to
year if approved annually (i) by the Board of Directors of the Fund or by the
holders of a majority of the Fund's outstanding voting securities, voting as a
single class, and (ii) by a majority of the Directors who are not parties to the
Advisory Agreement or interested persons (as defined in the 1940 Act) of any
such party. The Advisory Agreement may be terminated at any time, without
payment of any penalty, by vote of the majority of Directors, by vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act and as further described below), or by the Investment Adviser, in each
case on sixty days' prior written notice. The Advisory Agreement will terminate
automatically in the event of its assignment. Under the 1940 Act, a vote of a
majority of the outstanding voting securities of the Fund means the lesser of
either: (a) the vote of 67% or more of the voting securities present at the
relevant meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy, or (b) the vote of more than 50%
of the outstanding voting

securities. For purposes of voting on any approval, continuation or termination
of the Advisory Agreement, holders of the ATP and the Common Stock vote as a
single class.

Under the terms of the Advisory Agreement, the Investment Adviser is not
liable for any error of judgment or for any loss suffered by the Fund in
connection with performance of its obligations under the Advisory Agreement,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of, or from reckless disregard by it of its
obligations and duties under, the Advisory Agreement, or damages resulting from
a breach of fiduciary duty with respect to receipt of compensation for services.

T. ROWE PRICE PERFORMANCE INFORMATION. Among the key factors considered by
the Board of Directors in reaching its decision to engage T. Rowe Price as the
Fund's Investment Adviser was T. Rowe Price's record of superior performance in
the high-yield asset class. Shown below are performance figures for two open-end
funds managed by T. Rowe Price that invest in "high-yield" debt securities that
have substantially similar objectives, policies and strategies to the Fund, (a)
T. Rowe Price High Yield Fund, which is offered to investors as part of the
T. Rowe Price family of funds, and (b) Penn Series High Yield Bond Fund, which
serves as an investment vehicle for variable annuity and variable life insurance
contracts offered by The Penn Mutual Life Insurance Company and its subsidiary,
The Penn Insurance and Annuity Company. T. Rowe Price does not currently manage
any other closed-end funds similar to the Fund. T. Rowe Price High Yield Fund
focuses on the higher-quality range (debt rated BBB) of the "high-yield" market.
In evaluating the performance figures shown below, stockholders should keep in
mind that there are differences between the open-end funds managed by T. Rowe
Price and the Fund. Open-end funds must manage cash flows associated with
additional stockholder investments and stockholder redemption requests. As a
closed-end fund, the Fund does not experience the same types of cash flows or
need to maintain a cash position to meet possible redemption requests. Neither
of the open-end funds has a leveraged capital structure or is subject to
investment restrictions comparable to those imposed on the Fund by the rating
agencies for the ATP. In addition, T. Rowe Price High Yield Fund and Penn Series
High Yield Bond Fund have lower total fees and expenses than those of the Fund.
Performance of these open-end funds would have been lower if they reflected
deduction of the Fund's fees and expenses.

Also shown below are performance figures for the T. Rowe Price High Yield
Composite, which is an aggregation of the "high-yield" institutional accounts
managed by T. Rowe Price (excluding T. Rowe Price High Yield Fund and Penn
Series High Yield Bond Fund) whose investment objectives, policies and
strategies are substantially similar to the Fund's. These accounts were not
subject to the limitations and diversification requirements of the 1940 Act and
the Code and had they been, their performance could have been adversely
affected. Moreover, the performance of these accounts does not reflect the
impact of a leveraged capital structure or investment restrictions comparable to
those imposed upon the Fund by the rating agencies for the ATP. The performance
of the T. Rowe Price High Yield Composite is shown net of the highest investment
management fee applicable to any account included in the Composite. Performance
of the Composite would have been lower if it reflected deduction of the Fund's
fees and expenses.

For comparative purposes, also shown below are the performance of indices
designed to be representative of the "high-yield" debt market as a whole and the
universe of open-end funds with objectives similar to T. Rowe Price High Yield
Fund's and Penn Series High Yield Bond Fund's. The CS First Boston Global High
Yield Index is an unmanaged index designed to be representative of the
"high-yield" debt market as a whole. Returns for the CS First Boston Global High
Yield Index do not include operating expenses and other fees which the SEC
requires to be reflected in fund performance. It is not possible to invest
directly in an index. The Lipper High Current Yield Funds Average is an
unweighted index of open-end funds that focus on lower grade debt issues.
Comparisons to the Lipper index show how well T. Rowe Price High Yield Fund has
done relative to its competitors. The Lipper High Yield Bond Funds Index
consists of the 30 largest funds in the Lipper High Current Yield Funds
category. The Index includes T. Rowe Price High Yield Fund. The Lipper VA
Underlying High Current Yield Funds Average is an index of funds used as
investment vehicles for variable annuities; the funds in the index focus on
lower grade debt issues. Comparison to the Lipper index shows how well Penn
Series High Yield Bond Fund has done relative to its competitors.

The information in this table may also be compared with the Fund's own
performance. The Fund's average annual total returns as of March 31, 2003 for 1,
3, 5 and 10 Years were -11.35%, -5.64%, -5.76% and 4.55%, respectively. As
previously noted, on October 17, 2002 the Board of Directors decided to
replace the Fund's prior investment adviser with

T. Rowe Price. The Directors' decision to replace the investment adviser was
prompted primarily by the Directors' view that the Fund's performance over
recent periods had not met expectations.

AVERAGE ANNUAL TOTAL RETURNS AS OF MARCH 31, 2003*
--------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------

T. Rowe Price High Yield Fund 6.22% 3.92% 3.02% 6.41%
Penn Series High Yield Bond Fund 7.00 4.78 3.34 6.92
T. Rowe Price High Yield Composite 7.05 7.86 5.37 8.12
CS First Boston Global High Yield Index 7.52 3.84 2.20 6.51
Lipper High Current Yield Funds Average 2.71 -0.44 -1.02 4.54
Lipper High Yield Bond Funds Index 3.18 -2.04 -1.47 4.62
Rank - Lipper High Current Yield Funds
T. Rowe Price High Yield Fund 59 out of 379 36 out of 310 14 out of 209 6 out of 56
Lipper VA Underlying High Current Yield Funds
Average 3.72% -0.11% -0.60% -4.96%
Rank - Lipper VA Underlying High Current
Yield Funds
Penn Series High Yield Bond Fund Index 14 out of 83 8 out of 67 4 out of 51 3 out of 24

----------
* Average annual total returns include changes in principal value, reinvested
dividends, and capital gain distributions. Expense limitations may have
increased fund total returns. Past performance does not guarantee future
results.

PORTFOLIO EXECUTION. The Advisory Agreement authorizes T. Rowe Price to
arrange for the execution of the Fund's portfolio transactions by selecting the
brokers or dealers that will execute the purchases and sales of portfolio
securities of the Fund. The Advisory Agreement also directs T. Rowe Price to use
its best efforts to obtain the best net results, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), size of order, difficulty of execution and operational facilities of
the firm involved. T. Rowe Price may, in its discretion, purchase and sell
portfolio securities through brokers who provide T. Rowe Price or the Fund with
research, analysis, advice and similar services, and the Fund may pay to these
brokers, in return for research and analysis, a higher commission than may be
charged by other brokers, provided that T. Rowe Price determines in good faith
that such commission is reasonable in terms either of that particular
transaction or of the overall responsibility of T. Rowe Price to the Fund and
other clients of T. Rowe Price and that the total commission paid by the Fund
will be reasonable in relation to the benefits to the Fund over the long term.
Fixed income securities are generally purchased from the issuer or a primary
market-maker acting as principal for the securities on a net basis, with no
brokerage commission being paid by the Fund, although the price usually includes
a mark-up or undisclosed compensation. Transactions placed through dealers
serving as primary market-makers reflect the spread between the bid and asked
prices. Securities may also be purchased from underwriters at prices which
include underwriting fees.

In selecting a broker or dealer for each specific transaction, T. Rowe
Price will use its best judgment to choose the broker or dealer most capable of
providing the brokerage services necessary to obtain the best available price
and most favorable execution. The full range and quality of brokerage services
available will be considered in making these determinations. For example,
brokers may be selected on the basis of the quality of such brokerage services
related to the requirements of the specific transaction such as the following:
capable floor brokers or traders, competent block trading coverage, good
communication, ability to position, retail distribution and underwriting, use of
automation, arbitrage skills, administrative ability, or provision of market
information relating to the security. T. Rowe Price will make periodic
evaluations of the quality of these brokerage services as provided by various
firms and measure these services against its own standards of execution.
Brokerage services will be obtained only from those firms which meet its
standards, maintain a reasonable capital position and can be expected to
reliably and continuously supply these services.

On occasions when T. Rowe Price deems the purchase or sale of a security to
be in the best interest of the Fund as well as other clients, T. Rowe Price, to
the extent permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities to be so purchased or sold in order
to obtain a more favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction will be made by T. Rowe Price
in the manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Fund and to such other clients. In some instances,
this procedure may affect the price and size of the positions obtainable for the
Fund.

For the fiscal years ended December 31, 2000, 2001, and 2002, the Fund did
not pay any brokerage commissions for the execution of portfolio transactions.

ADMINISTRATIVE SERVICES. Unlike many other investment companies, the Fund
does not rely on its Investment Adviser to provide administrative and managerial
services. Accordingly, since February 1992 the Fund has engaged Ellen E. Terry,
Vice President and Treasurer, to perform administrative services. Subject to the
supervision of the Board of Directors and officers of the Fund, Ms. Terry, among
other things, coordinates the preparation of the Fund's semi-annual, annual and
other periodic reports, proxy statements and other communications with
stockholders; oversees the preparation of the Fund's periodic reports required
to be filed with the Commission and the rating agencies; and assists in
responding to stockholder/retail broker inquiries and disseminating information
to the same based on information provided. Since February 1992, the Fund has
also engaged Paul E. Saidnawey to provide certain related administrative
services subject to the supervision of the Board of Directors and Ms. Terry.

Ms. Terry receives $12,875 per month, plus insurance premium that is
subject to adjustment upward if insurance premiums increase, for the services
set forth above. Ms. Terry's services are terminable by either party on ninety
days' written notice. Mr. Saidnawey receives $8,369 per month, plus insurance
premium that is subject to adjustment upward if insurance premiums increase, for
the services set forth above and his services are terminable by either party on
ninety days' written notice. Unlike other funds that are affiliated with larger
organizations, the Fund relies on Ms. Terry, Mr. Saidnawey and Robert F. Birch,
its President, for its administrative and related services. In the event of a
departure of these individuals, the Fund would likely be forced to replace them
with others or with a larger organization, which could result in an increase in
the Fund's annual expenses.

CODE OF ETHICS

The Fund and T. Rowe Price have each adopted a Code of Ethics under Rule
17j-1 of the 1940 Act. Each Code of Ethics establishes procedures for personal
investing and restricts certain transactions. Subject to certain conditions and
restrictions, these Codes of Ethics permit persons subject to these codes to
invest in securities for their personal investment accounts, including
securities that may be purchased, held or sold by the Fund. Securities
transactions by some of these persons may be subject to prior approval.

These Codes of Ethics can be reviewed and copied at the Commission's Public
Reference Room in Washington, D.C. Information about the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
These Codes of Ethics are available on the EDGAR Database at the Commission's
Internet site at http://www.sec.gov. Copies may also be obtained, after paying a
duplicating fee, by electronic request at the following E-mail address:
publicinfo@sec.gov, or by writing to the Commission's Public Reference Section,
Washington, D.C. 20549-0102.

PORTFOLIO MATURITY AND TURNOVER

The Fund's holdings may include issues of various maturities. Ordinarily,
the Fund will emphasize investments in medium and longer-term instruments (i.e.,
those with maturities in excess of three years), but the weighted average
maturity of portfolio holdings may be shortened or lengthened depending on the
Investment Adviser's general investment outlook or changes in the
characteristics of "high-yield" securities. To the extent the weighted average
maturity of the Fund's portfolio securities is lengthened, the value of such
holdings will be more susceptible to fluctuation in response to changes in
interest rates and general economic conditions. As of April 30, 2003, the
weighted average maturity of the Fund's portfolio holdings was approximately 6.6
years. The weighted

average of the Fund's portfolio will fluctuate depending on market conditions
and investment opportunities. The Fund, however, does not expect that the
weighted average maturity of the Fund's portfolio will, under normal conditions,
exceed fifteen years.

The Investment Adviser actively makes portfolio adjustments that reflect
the Fund's investment strategy, but generally does not trade securities for the
Fund for the purpose of seeking short-term profits. It will, however, change the
Fund's securities, regardless of how long they have been held, when it believes
doing so will further the Fund's investment objective.

In light of the Fund's investment objective and policies, it is anticipated
that the Fund's portfolio turnover rate may, from time to time, exceed 100% per
annum. A 100% annual turnover rate would occur, for example, if all the
securities in the Fund's portfolio were replaced once within a period of one
year. The Fund reserves full freedom with respect to portfolio turnover. In
periods when there are rapid changes in economic conditions or security price
levels or when investment strategy is changed significantly, portfolio turnover
may be significantly higher than during times of economic and market price
stability, when investment strategy remains relatively constant. A high rate of
portfolio turnover will result in increased transaction costs for the Fund in
the form of increased dealer spreads and brokers commissions. The Fund's
portfolio turnover rates for the fiscal years ended December 31, 2000, 2001, and
2002 were 45.58%, 38.89% and 82.47%, respectively. The appointment of T. Rowe
Price as the Fund's Investment Advisor on December 2, 2002 contributed to the
increased portfolio turnover rate in the year ended December 31, 2002.

TAXATION

The following discussion offers only a brief outline of the federal income
tax consequences of investing in the Common Stock. Investors should consult
their own tax advisors for more detailed information and for information
regarding the impact of state and local taxes upon such an investment.

FEDERAL INCOME TAX TREATMENT OF THE FUND

The Fund qualifies and elects to be treated as a regulated investment
company under Subchapter M of the Code and intends to qualify under those
provisions each year. To qualify as a regulated investment company, the Fund
must, among other things, (a) derive in each taxable year at least 90% of its
gross income from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its business of investing
in stocks, securities or currencies; (b) diversify its holdings so that, at the
end of each quarter of its taxable year, (i) at least 50% of the market value of
the Fund's assets is represented by (A) cash, cash items (including
receivables), U.S. Government securities and securities of other regulated
investment companies, and (B) other securities, with such other securities of
any one issuer generally limited for the purposes of this calculation to an
amount not greater than 5% of the value of the Fund's total assets and 10% of
the outstanding voting securities of such issuer and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities), or two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses or related trades or businesses.

As a regulated investment company, in any fiscal year with respect to which
the Fund distributes at least 90% of its net investment income (i.e., the Fund's
investment company taxable income, as that term is defined in the Code, without
regard to the deduction for dividends paid), the Fund (but not its stockholders)
generally will be relieved of U.S. federal income taxes on its net investment
income and net capital gains (i.e., the Fund's net long-term capital gains in
excess of the sum of net short-term capital losses and capital loss carryovers
from prior years, if any) that it distributes to stockholders. However, the Fund
will be subject under current tax rates to a federal income tax at a maximum
effective rate of 35% on any undistributed net investment income and net capital
gain. See "Federal Income Tax Treatment of Holders of Common Stock" below.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax payable by
the Fund. To avoid the tax, the Fund must distribute, or be deemed to have
distributed, during each calendar year an amount equal to the sum of (1) at
least 98% of its ordinary income (not taking into account any capital gains or
losses) for the calendar year, (2) at least 98% of its capital gains in excess
of its capital losses (adjusted for certain

ordinary losses) for the twelve-month period ending on October 31 of the
calendar year, and (3) all ordinary income and capital gains for previous years
that were not distributed during such years. For this purpose, any income or
gain retained by the Fund that is subject to corporate tax will be considered to
have been distributed by year-end. To prevent application of the excise tax, the
Fund intends to make its distributions in accordance with the calendar year
distribution requirement. Compliance with the calendar year distribution
requirement may limit the extent to which the Fund will be able to retain its
net capital gains for investment.

If in any taxable year the Fund fails to qualify as a regulated investment
company under the Code, the Fund will be taxed in the same manner as an ordinary
corporation and distributions to its stockholders will not be deductible by the
Fund in computing its taxable income. In addition, in the event of failure to
qualify, the Fund's distributions, to the extent derived from the Fund's current
or accumulated earnings and profits, will constitute dividends (eligible for the
corporate dividends-received deduction) which are taxable to stockholders as
ordinary income, even though those distributions might otherwise (at least in
part) have been treated in the stockholder's hands as long-term capital gains.

If the Fund does not meet the asset coverage requirements of the 1940 Act,
the Fund will be required to suspend distributions to the holders of the Common
Stock and/or the ATP until the asset coverage is restored. See "Description of
Capital Stock-Dividends and Dividend Periods." Such a suspension of
distributions might prevent the Fund from distributing 90% of its net investment
income, as is required in order to qualify for taxation as a regulated
investment company, or cause the Fund to incur a tax liability or a
non-deductible 4% excise tax on its undistributed taxable income (including
gain), or both.

Upon any failure to meet the asset coverage requirements of the 1940 Act,
the Fund intends to repurchase or redeem (to the extent permitted under the 1940
Act) ATP in order to maintain or restore the requisite asset coverage and avoid
failure to remain qualified as a regulated investment company. The determination
to repurchase or redeem ATP and the amounts to be repurchased or redeemed, if
any, will be made in the sole discretion of the Fund.

Use of the Fund's cash to repurchase or redeem ATP may adversely affect the
Fund's ability to distribute annually at least 90% of its net investment income,
which distribution is required to qualify for taxation as a regulated investment
company. The Fund may also recognize income in connection with funding
repurchases or redemptions of ATP, and such income would be taken into account
in determining whether or not the above-described distribution requirements have
been met. Depending on the size of the Fund's assets relative to its outstanding
senior securities, redemption of ATP might restore asset coverage. Payment of
distributions after restoration of asset coverage could requalify (or avoid a
disqualification of) the Fund as a regulated investment company, depending upon
the facts and circumstances.

Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
stockholders. For example, with respect to certain securities issued at a
discount, the Fund will be required to accrue as income each year a portion of
the discount and to distribute such income each year in order to satisfy the 90%
distribution requirement and the distribution requirements for avoiding income
and excise taxes. In order to generate sufficient cash to make distributions
necessary to satisfy the 90% distribution requirement and to avoid income and
excise taxes, the Fund may have to borrow money or dispose of securities that it
would otherwise have continued to hold.

The Fund's transactions in foreign currencies, forward contracts, options
and futures contracts (including options and futures contracts on foreign
currencies) are subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore affect the
character, amount and timing of distributions to stockholders. These provisions
also may require the Fund to mark-to-market certain types of the positions in
its portfolio (i.e., treat them as if they were closed out) which may cause the
Fund to recognize income without receiving cash with which to make distributions
in amounts necessary to satisfy the distribution requirements for avoiding
income and excise taxes. The Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books

and records when it acquires any foreign currency, option, futures contract,
forward contract, or hedged investment in order to mitigate the effect of these
rules and prevent disqualification of the Fund as a regulated investment company
and minimize the imposition of income and excise taxes.

If the Fund fails to qualify as a regulated investment company for any
year, it generally must pay out its earnings and profits accumulated in that
year, less an interest charge to the Treasury on 50% of such earnings and
profits before it can again qualify as a regulated investment company.

FEDERAL INCOME TAX TREATMENT OF HOLDERS OF COMMON STOCK

The Fund's income will consist of net investment income and may also
consist of net capital gains. For federal income tax purposes, the Internal
Revenue Service (the "Service") currently requires that a regulated investment
company that has two or more classes of shares allocate to each such class
proportionate amounts of each type of its income (such as ordinary income and
net capital gains) for each tax year. Accordingly, the Fund intends to designate
distributions made with respect to the Common Stock and the ATP as consisting of
particular types of income (net capital gains and ordinary income) in accordance
with each class' proportionate share of the total dividends paid to both
classes. The amount of the net capital gains realized by the Fund is not
expected to be significant and there is no assurance that any such income will
be realized by the Fund in any year. Distributions of the Fund's net investment
income are taxable to stockholders as ordinary income. Distributions of the
Fund's net capital gains, if any, are taxable to stockholders at rates
applicable to long-term capital gains regardless of the length of time the
Common Stock has been held by the holders. Distributions in excess of the Fund's
earnings and profits will first reduce a shareholder's adjusted tax basis in his
or her shares of Common Stock and, after the adjusted tax basis is reduced to
zero, will constitute capital gains to a holder of shares of Common Stock who
holds his or her shares of Common Stock as a capital asset.

Dividends and distributions will be taxable to stockholders as if actually
distributed, even if they are reinvested in additional shares of the Fund.
Stockholders receiving distributions in the form of newly issued shares will
have a cost basis in each share received equal to the fair market value of a
share of the Fund on the distribution date.

Although the Fund is required to distribute annually at least 90% of its
net investment income, the Fund is not required to distribute net capital gains
to its stockholders. The Fund may retain and reinvest such gains and pay federal
income taxes on such gains (the "net undistributed capital gains"). However, it
is unclear whether a portion of the net undistributed capital gains would have
to be allocated to the ATP for federal income tax purposes. Until and unless the
Fund receives acceptable guidance from the Service as to the allocation of the
net undistributed capital gains between the Common Stock and the ATP, the Fund
intends to distribute its net capital gains for any year during which it has
shares of ATP outstanding.

Although dividends generally will be treated as distributed when paid,
dividends declared in October, November and December, payable to stockholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the stockholders on the December 31 prior to the date of payment. In
addition, solely for the purpose of satisfying the 90% distribution requirement
and the distribution requirement for avoiding income taxes, certain
distributions made after the close of a taxable year of the Fund may be "spilled
back" and treated as paid during such taxable year. In such case, stockholders
will be treated as having received such dividends in the taxable year in which
the distribution was actually made. The Service has ruled privately that
dividends paid following the close of the taxable year that are treated for tax
purposes as derived from income from the prior year will be treated as dividends
"paid" in the prior year for purposes of determining the proportionate share of
a particular type of income for each class. Accordingly, the Fund intends to
treat any such dividends that are paid following the close of a taxable year as
"paid" in the prior year for purposes of determining a class' proportionate
share of a particular type of income. However, the private ruling is not binding
on the Service, and there can be no assurance that the Service will respect such
treatment.

Most of the Fund's net investment income is derived from interest-bearing
securities. Accordingly, dividends paid with respect to the Common Stock
generally will not qualify for the corporate dividends received

deduction. However, from time to time, a portion of the Fund's net investment
income may be dividends on equity securities which are eligible for the
dividends received deduction under Section 243 of the Code.

Corporate stockholders who otherwise are eligible to claim the dividends
received deduction under Section 243 of the Code can deduct 70% of the portion
of the Common Stock dividend representing the shareholder's portion of the
Fund's eligible dividend income. The Service has ruled that corporate
stockholders of a regulated investment company must meet the forty-five day
holding requirement of Section 246(c)(1)(A) of the Code with respect to the
shares of the regulated investment company to qualify for the dividends received
deduction.

Distributions that the Fund properly designates as capital gains dividends
will be taxable to U.S. stockholders as gains from the sale or disposition of a
capital asset held for more than one year to the extent that these gains do not
exceed the Fund's actual net capital gain for the taxable year. The Fund will
notify stockholders after the close of its taxable year as to the portions of
the distributions attributable to that year that constitute ordinary income
(including any portion thereof qualifying for the dividends received deduction
generally available to corporations), return of capital, and capital gain.

SALE OF SHARES

The sale of shares of Common Stock (including transfers in connection with
a redemption or repurchase of such shares of Common Stock or a liquidation of
the Fund) will be a taxable transaction for federal income tax purposes. Selling
stockholders will generally recognize gain or loss in an amount equal to the
difference between their basis in their shares and the amount received in
exchange therefor. If such shares of Common Stock are held as a capital asset,
the gain or loss will generally be a capital gain or loss and will be long-term
if such stockholders have held the shares for more than one year. Any loss
realized upon a taxable disposition of shares of Common Stock held for six
months or less will be treated as a long-term loss to the extent of any
distributions of net capital gains received (or credited with undistributed
capital gain) with respect to such shares. All or a portion of any loss realized
upon a taxable disposition of shares of Common Stock may be disallowed if other
shares of Common Stock are purchased by the shareholder within thirty days
before or after the disposition.

BACKUP WITHHOLDING

The Fund may be required to withhold for federal income taxes at the
current rate of 28% on all taxable distributions payable to stockholders who
fail to provide the Fund with their correct taxpayer identification number or
who fail to make required certifications or if the Fund or a stockholder has
been notified by the Service that they are subject to backup withholding.
Corporate stockholders and other stockholders specified in the Code are exempt
from such backup withholding. Backup withholding is not an additional tax. Any
amounts withheld may be credited against the stockholder's U.S. federal income
tax liability.

OTHER TAXATION

In general, federal withholding taxes at a 30% rate or a lesser rate
established by treaty may apply to distributions to stockholders (except to
those distributions designated by the Fund as capital gains dividends or
anticipated by the Fund to qualify as return of capital) that are nonresident
aliens or foreign partnerships, trusts or corporations. Investors are advised to
consult their own tax advisors with respect to the application to their own
circumstances of the above-described general taxation rules and with respect to
the state, local or foreign tax consequences to them of an investment in the
Common Stock.

DESCRIPTION OF CAPITAL STOCK

The following is a brief description of the terms of the capital stock of
the Fund. This description does not purport to be complete and is subject to
qualification in its entirety by reference to the Articles that establish and
fix the rights and preferences of the Common Stock and the shares of ATP. A copy
of the Articles, including a copy of the Articles Supplementary establishing the
ATP, and any amendments thereto, is filed as an exhibit to the Registration
Statement of which this Prospectus is a part and may be inspected and copies
thereof may be obtained as described under "Additional Information."

GENERAL

The authorized capital stock of the Fund consists of 1,000,000 shares of
preferred stock, $1.00 par value, issuable in one or more series and 200,000,000
shares of Common Stock, par value $0.01 per share. All shares of Common Stock
have equal rights as to voting, dividends and liquidation. At April 30, 2003,
there were 69,976,967 outstanding shares of Common Stock of the Fund and 4,000
outstanding shares of preferred stock of which 1,400 are classified as ATP
Series A, 1,000 are classified as ATP Series B, 600 are classified as ATP Series
C, and 1,000 are classified as ATP Series D. All shares of Common Stock and ATP
issued and outstanding are fully paid and non-assessable. Shares of Common Stock
have no preemptive, conversion or redemption rights and are freely transferable.
Subject to confirmation from the rating agencies that the rating of the ATP will
not change, the Fund may issue additional shares of each series or additional
series of preferred stock in the future, which additional series may have
substantially different terms than the terms of the ATP. The description herein
of the Fund's capital structure relates to its capital structure at the date
hereof.

The following description refers to each series of ATP separately as and
when the context so requires.

DIVIDENDS AND DIVIDEND PERIODS

Dividends on shares of ATP are cumulative from the date on which such
shares were originally issued and are payable, when, as and if declared by the
Board of Directors of the Fund out of funds legally available therefor, on each
Dividend Payment Date thereafter. "Dividend Payment Date" for each series of
ATP, means (i) with respect to any Dividend Period of one year or less, the
business day next succeeding the last day thereof and, if any, the 91st, 181st
and 271st days thereof, and (ii) with respect to any Dividend Period of more
than one year, on a quarterly basis on each January 1, April 1, July 1 and
October 1 and on the business day following the last day of such Dividend
Period. For Dividend Periods of one year or less, Dividend Payment Dates occur
on the business day next succeeding the last day of such Dividend Period and, if
any, on the 91st, 181st and 271st days thereof. "Dividend Period" means, with
respect to the relevant series of ATP, the period commencing on the day
following each Dividend Period for such series and ending on the day established
for such series by the Fund. For Dividend Periods of more than one year,
Dividend Payment Dates occur on a quarterly basis on each January 1, April 1,
July 1 and October 1 within such Dividend Period and on the business day
following the last day of such Dividend Period. Dividends are paid through a
securities depository (DTC or a successor securities depository) (a "Securities
Depository") on each Dividend Payment Date. The Securities Depository's current
procedures provide for it to distribute dividends in same-day funds to members
of or participants in the Securities Depository that will act on behalf of a
holder of ATP or person placing an order for ATP ("Agent Member"), who are in
turn expected to distribute such dividends to the persons for whom they are
acting as agents. For each Dividend Period, subject to certain exceptions, the
dividend rates will be the rate (the "Applicable Rate") that the Auction Agent
advises the Fund has resulted from a periodic auction ("Auction") of the ATP in
accordance with the auction procedures.

Dividend Periods are either standard term periods of twenty-eight days
(unless such 28th day is not a business day, then the number of days ending on
the business day next preceding such 28th day) (a "Standard Term Period") or,
subject to certain conditions and with notice to holders, periods longer or
shorter than twenty-eight days and having such duration as the Board of
Directors shall specify (each, an "Alternate Term Period"). During the Standard
Term Period for ATP, Series A (May 13, 2003 to June 9, 2003), Series B (April
29, 2003 to May 26, 2003), Series C (May 6, 2003 to June 2, 2003), and Series D
(April 22, 2003 to May 19, 2003), dividends were paid at a rate of 1.35%, 1.35%,
1.35% and 1.33%, respectively.

An Alternate Term Period will not be effective unless, among other things,
sufficient clearing orders exist at the Auction in respect of such Alternate
Term Period (that is, in general, the number of shares of ATP subject to buy
orders by potential holders is at least equal to the number of shares subject to
sell orders by existing holders). If sufficient clearing orders do not exist at
any Auction in respect of an Alternate Term Period, the Dividend Period
commencing on the business day succeeding such Auction will be a Standard Term
Period and the holders of the shares of the affected series will be required to
continue to hold such shares for such Standard Term Period.

Except during a "Default Period" as described below, the Applicable Rate
resulting from an Auction will not be greater than the "Maximum Applicable
Rate," which is equal to 150% of the applicable AA Composite Commercial Paper
Rate (for a Dividend Period of fewer than 184 days) or the applicable Treasury
Index Rate (as

defined below) (for a Dividend Period of 184 days or more (each, a "Reference
Rate")), in each case subject to upward but not downward adjustment in the
discretion of the Board of Directors after consultation with the broker-dealers
who place orders on behalf of their clients in connection with the Auction
("Broker-Dealers"), provided that immediately following any such increase the
Fund would be in compliance with the ATP Basic Maintenance Amount.

"TREASURY INDEX RATE" means the average yield to maturity for actively
traded marketable U.S. Treasury fixed interest rate securities having the same
number of thirty-day periods to maturity as the length of the applicable
Dividend Period, determined, to the extent necessary, by linear interpolation
based upon the yield for such securities having the next shorter and next longer
number of thirty-day periods to maturity treating all Dividend Periods with a
length greater than the longest maturity for such securities as having a length
equal to such longest maturity, in all cases based upon data set forth in the
most recent weekly statistical release published by the Board of Governors of
the Federal Reserve System (currently in H.15(519)); provided, however, if the
most recent such statistical release shall not have been published during the
fifteen days preceding the date of computation, the foregoing computations shall
be based upon the average of comparable data as quoted to the Fund by at least
three recognized dealers in U.S. Government securities selected by the Fund.

The Maximum Applicable Rate for the shares of ATP will apply automatically
following an Auction for such shares in which sufficient clearing orders have
not been made (other than because all shares of ATP were the subject of hold
orders by existing holders) or following the failure to hold an Auction for any
reason on the first business day next preceding the first day of a Dividend
Period for the relevant series of ATP ("Auction Date") scheduled to occur
(except for circumstances in which the dividend rate for the ATP is the Default
Rate, as described below).

The "Minimum Applicable Rate" will apply automatically following an Auction
in respect of a Dividend Period of ninety-three days or fewer in which all of
the outstanding shares are subject to (or are deemed to be subject to) hold
orders. The Minimum Applicable Rate is 80% of the applicable AA Composite
Commercial Paper Rate. No minimum rate is specified for Auctions in respect of
Dividend Periods of more than ninety-three days.

DEFAULT PERIOD. A "Default Period" will commence on the applicable date set
forth below if the Fund fails to (i) declare prior to the close of business on
the second business day preceding any Dividend Payment Date, for payment on or
(to the extent permitted as described below) within two business days after such
Dividend Payment Date to the persons who held shares of ATP as of 12:00 noon,
New York City time, on the business day preceding such Dividend Payment Date,
the full amount of any dividend payable on such Dividend Payment Date, (ii) to
deposit, irrevocably in trust, in same-day funds, with a designated paying agent
by 12:00 noon, New York City time, (A) on or (to the extent permitted as
described below) within two business days after any Dividend Payment Date the
full amount of any declared dividend on the relevant series of ATP payable on
such Dividend Payment Date (together with the failure to timely declare
dividends described in (i) above, hereinafter referred to as a "Dividend
Default") or (B) on or (to the extent permitted as described below) within two
business days after any date fixed for redemption of shares of ATP called for
redemption, the applicable redemption price (a "Redemption Default"), or (iii)
to maintain the Aaa/AAA Credit Rating unless the Aaa/AAA Credit Rating is
restored by the Dividend Payment Date next following the date on which the Fund
fails to maintain the Aaa/AAA Credit Rating (a "Rating Default"). A Default
Period with respect to a Dividend Default or a Redemption Default will consist
of the period commencing on and including the aforementioned Dividend Payment
Date or redemption date, as the case may be, and ending on and including the
business day on which, by 12:00 noon, New York City time, all unpaid dividends
and unpaid redemption price shall have been so deposited or shall have otherwise
been made available to the applicable holders in same day funds. A Default
Period with respect to a Rating Default shall commence as of the date on which
the Fund fails to maintain the Aaa/AAA Credit Rating (provided that such Rating
Default shall be deemed not to have occurred and such Default Period shall not
commence if such Rating Default is cured by the next succeeding Dividend Payment
Date) and shall end on the earlier of the date on which such default is cured as
provided herein or the date on which the ATP is mandatorily redeemed as provided
herein. Holders of two-thirds of the ATP then outstanding may waive any Dividend
Default, Redemption Default or Rating Default.

The Applicable Rate for each Default Period, including each Dividend Period
commencing during a Default Period, will be equal to the Reference Rate
multiplied by three (the "Default Rate"). Each subsequent Dividend Period
commencing after the beginning of a Default Period shall be a Standard Term
Period; provided,

however, that the commencement of a Default Period will not by itself cause the
commencement of a new Dividend Period. Any dividend due on any Dividend Payment
Date (if, prior to 12:00 noon, New York City time, on such Dividend Payment
Date, the Fund has declared such dividend payable on or within three business
days after such Dividend Payment Date to the persons who held such shares as of
12:00 noon, New York City time, on the business day preceding such Dividend
Payment Date) or redemption price with respect to such shares not paid to such
persons when due may (if such default is not solely due to the willful failure
of the Fund) be paid to such Persons in the same form of funds by 12:00 noon,
New York City time, on any of the first three business days after such Dividend
Payment Date or due date, as the case may be, provided that such amount is
accompanied by an additional amount for such period of non-payment at the
Default Rate applied to the amount of such default based on the actual number of
days comprising such period divided by 360. For the purposes of the foregoing,
payment to a person in same-day funds made on or before 12:00 noon New York City
time on any business day at any time will be considered equivalent to payment to
that person in New York Clearing House (next-day) funds at the same time on the
preceding business day, and any payment made after 12:00 noon, New York City
time, on any business day shall be considered to have been made instead in the
same form of funds and to the same person before 12:00 noon, New York City time,
on the next business day.

Subject to the foregoing, and any requirements of Maryland law, to the
extent that the Fund's net investment income for any year exceeds any current or
accumulated dividends on the ATP, it will be distributed to the holders of the
Common Stock. The term "net investment income" includes interest, dividends,
short-term capital gains and other income received or accrued less the advisory
fee, bank custodian charges, taxes (except capital gain taxes) and other
expenses properly chargeable against income, but does not include net capital
gains, stock dividends, transfer taxes, brokerage or other capital charges or
distributions designated as a return of capital. Any realized net capital gains
(defined as the excess of net long-term capital gains over net short-term
capital losses) of the Fund will be distributed annually to the holders of the
Common Stock (subject to the prior rights of the holders of the ATP) subject to
the foregoing and any requirements of Maryland law.

Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), holders of
Common Stock may elect to receive all dividends and capital gains distributions
in cash paid by check mailed directly to such holders by EquiServe, as dividend
disbursing agent. Pursuant to the Plan, holders of Common Stock not making such
election will have all such amounts automatically reinvested by the bank serving
as Plan agent, in whole or fractional shares of Common Stock, as the case may
be. See "Dividends and Distributions; Dividend Reinvestment Plan."

SWAP ARRANGEMENT. Effective October 1, 2001, the Fund entered into a
five-year interest payment swap arrangement (the "Swap Arrangement") with Fleet
for the purpose of hedging its dividend payment obligations with respect to the
ATP. Pursuant to the Swap Arrangement, the Fund makes payments to Fleet on a
monthly basis at a fixed annual rate of 4.50%, computed on a notional contract
amount of $100 million. In exchange for these payments, Fleet makes payments to
the Fund on a monthly basis at a variable rate determined with reference to one
month LIBOR. The variable rates ranged from 1.44% to 2.14% for the year ended
December 31, 2002. In the current interest rate environment, the Swap
Arrangement requires the Fund to make net payments to Fleet and therefore less
income is available for the Common Stock dividend than if the Swap Arrangement
were not in place.

Swap transactions, which involve future settlement, give rise to credit
risk. Credit risk is the amount of loss the Fund would incur in the event
counterparties failed to perform according to the terms of the contractual
commitments. In the event of nonperformance by the counterparty, the Fund's
dividend payment obligation with respect to the ATP would no longer be hedged.
The Fund does not anticipate nonperformance by any counterparty. While notional
contract amounts are used to express the volume of interest rate swap
agreements, the amounts potentially subject to credit risk, in the event of
nonperformance by counterparties, are substantially smaller.

The Fund accounts for the Swap Arrangement in accordance with the Statement
of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. This statement requires an entity to recognize all
freestanding derivative instruments in the balance sheet as either assets or
liabilities and measure them at fair value. Any change in the unrealized gain or
loss is recorded in current earnings. For the year ended December 31, 2002, the
Fund's obligations under the Swap Arrangement were more than the amount received
from Fleet by approximately $2,851,000 and the estimated fair value of the Swap
Arrangement at December 31, 2002 amounted to approximately $6,768,000 of
unrealized loss.

The Fund obtained consents from Moody's and Fitch to enter into the Swap
Arrangement. In connection with obtaining such consent, the Fund agreed to an
increase in its discounted asset coverage requirement as described below under
"Asset Maintenance" below. The Swap Arrangement will remain in effect through
October 1, 2006, subject to early termination in certain circumstances, such as
a default in payment obligations under the Swap Arrangement, a breach by either
party of any agreement or obligation under the Swap Arrangement, the bankruptcy
of either party to the Swap Arrangement, certain changes in tax laws, and
illegality. Upon any such early termination the Fund will be required to make a
payment to, or will receive a payment from, Fleet, based on the market value of
the Swap Arrangement at that time. In the event that the Fund fails to satisfy
certain asset coverage requirements that give rise to a mandatory redemption of
ATP, the Fund has agreed with Moody's and Fitch that it will terminate the Swap
Arrangement to the extent the notional amount of such Swap Arrangement following
such redemption would exceed the aggregate liquidation preference of the ATP
that would remain outstanding following such redemption, or in such greater
amount as the Fund may determine, subject to deferral to the extent the value of
the Swap Arrangement then exceeds a specified benchmark.

RESTRICTIONS ON DIVIDENDS AND OTHER PAYMENTS. Under the 1940 Act, the Fund
may not declare dividends or make other distributions on the Common Stock or
purchase any Common Stock if, at the time of the declaration, distribution or
purchase, as applicable (and after giving effect thereto), asset coverage (as
defined in the 1940 Act) with respect to the outstanding shares of ATP would be
less than 200%. Under the Code, the Fund must, among other things, distribute at
least 90% of its investment company taxable income each year in order to
maintain its qualification for tax treatment as a regulated investment company.
The foregoing limitation on dividends, distributions and purchases may, in
certain circumstances, impair the Fund's ability to maintain such qualification.
The Fund intends, however, to redeem shares of ATP to the extent necessary to
maintain such qualification. See "Taxation."

Upon failure to pay dividends for two years or more, the holders of ATP
will acquire certain additional voting rights. See "Voting Rights" below. Such
rights shall be the exclusive remedy of the holders of ATP upon any failure to
pay dividends on the ATP.

For so long as any shares of ATP are outstanding, except in connection with
the liquidation the Fund, or a refinancing of the ATP as provided in the
Articles, the Fund will not declare, pay or set apart for payment any dividend
or other distribution (other than a dividend or distribution paid in shares of,
or options, warrants or rights to subscribe for or purchase, Common Stock or
other shares, if any, ranking junior to the ATP as to dividends or upon
liquidation) in respect to Common Stock or any other shares of the Fund ranking
junior to or on a parity with the ATP as to dividends or upon liquidation, or
call for redemption, redeem, purchase or otherwise acquire for consideration any
Common Stock or any other such junior shares (except by conversion into or
exchange for shares of the Fund ranking junior to the ATP as to dividends and
upon liquidation) or any such parity shares (except by conversion into or
exchange for shares of the Fund ranking junior to or on a parity with the ATP as
to dividends and upon liquidation), unless (i) immediately after such
transaction, the Fund would have Eligible Assets with an aggregate Discounted
Value at least equal to the ATP Basic Maintenance Amount and the 1940 Act ATP
Asset Coverage (see "Asset Maintenance" and "Redemption" below) would be
achieved, (ii) full cumulative dividends on the ATP due on or prior to the date
of the transaction have been declared and paid and (iii) the Fund has redeemed
the full number of shares of ATP required to be redeemed by any provision for
mandatory redemption contained in the Articles.

REDEMPTION

OPTIONAL REDEMPTION. To the extent permitted under the 1940 Act and
Maryland Law, the Fund at its option may redeem shares of ATP having a Dividend
Period of less than one year, in whole or in part, on the business day after the
last day of such Dividend Period upon not less than fifteen days and not more
than forty days prior notice. The optional redemption price shall be $25,000 per
share, plus an amount equal to accumulated but unpaid dividends thereon (whether
or not earned or declared) to the date fixed for redemption. Shares of ATP
having a Dividend Period of more than one year may be redeemable at the option
of the Fund prior to the end of the relevant Dividend Period, subject to any
Specific Redemption Provisions (as defined below), which may include the payment
of redemption premiums to the extent required under any applicable Specific
Redemption Provisions. The Fund shall not effect any optional redemption unless
after giving effect thereto the Fund would have Eligible Assets with an
aggregate Discounted Value at least equal to the ATP Basic Maintenance Amount.

"Specific Redemption Provisions" means with respect to any Alternate Term
Period of more than one year, either, or any combination of (i) a period (a
"Non-Call Period") determined by the Board of Directors after consultation with
the Broker-Dealers, during which the shares subject to such Alternate Term
Period are not subject to redemption at the option of the Fund pursuant to
Section 3(a)(i) of the Articles and/or Section 3(a)(ii) and/or 3(a)(iii) of the
Articles and (ii) a period (a "Premium Call Period"), consisting of a number of
whole years as determined by the Board of Directors after consultation with the
Broker-Dealers, during each year of which the shares subject to such Alternate
Term Period shall be redeemable at the Fund's option pursuant to Section 3(a)(i)
of the Articles and/or in connection with any mandatory redemption pursuant to
Section 3(a)(ii) and/or 3(a)(iii) of the Articles at a price per share equal to
$25,000 plus accumulated but unpaid dividends plus a premium expressed as a
percentage or percentages of $25,000 or expressed in a formula using specified
variables as determined by the Board of Directors after consultation with the
Broker-Dealers.

The Fund also reserves the right to repurchase ATP in market or other
transactions from time to time in accordance with applicable law and at a price
that may be more or less than the liquidation preference of the ATP, but is
under no obligation to do so.

MANDATORY REDEMPTION. If the Fund fails to maintain, as of any Valuation
Date, Eligible Assets with an aggregate Discounted Value at least equal to the
ATP Basic Maintenance Amount or, as of the last business day of any month, the
1940 Act ATP Asset Coverage, and such failure is not cured within two business
days following the relevant Valuation Date in the case of a failure to maintain
the ATP Basic Maintenance Amount or the last business day of the following month
in the case of a failure to maintain 1940 Act ATP Asset Coverage as of such last
business day (each an "Asset Coverage Cure Date"), the ATP will be subject to
mandatory redemption out of funds legally available therefor. See "Asset
Maintenance" below. The number of shares of ATP to be redeemed in such
circumstances will be equal to the lesser of (i) the minimum number of shares of
ATP the redemption of which, if deemed to have occurred immediately prior to the
opening of business on the relevant Asset Coverage Cure Date, would result in
the Fund having Eligible Assets with an aggregate Discounted Value at least
equal to the ATP Basic Maintenance Amount, or sufficient to satisfy 1940 Act ATP
Asset Coverage, as the case may be, in either case as of the relevant Asset
Coverage Cure Date (provided that, if there is no such minimum number of shares
the redemption of which would have such result, all shares of ATP then
outstanding will be redeemed), and (ii) the maximum number of shares of ATP that
can be redeemed out of funds expected to be available therefor on the Mandatory
Redemption Date (as defined below).

If the Fund at any time fails to maintain the Aaa/AAA Credit Rating for the
ATP, and such failure is not cured within ninety calendar days thereafter (the
"Rating Default Cure Date"), all shares of ATP will be subject to mandatory
redemption out of funds legally available therefor, on the Mandatory Redemption
Date, and dividends thereon will be payable at the Default Rate until such
redemption is effected as provided above under "Dividends and Dividend
Periods-Default Period." To maintain the Aaa/AAA Credit Rating, the Fund must
maintain a rating for the ATP in the highest rating category from any two
nationally recognized statistical rating organizations, as used in the
Securities Exchange Act of 1934, as amended, one of which shall be Moody's or
S&P.

Shares of ATP may be subject to mandatory redemption in accordance with the
foregoing redemption provision notwithstanding the terms of any Specific
Redemption Provisions.

The Fund is required to effect such a mandatory redemption not later than
thirty days after the Asset Coverage Cure Date or the Rating Default Cure Date,
as the case may be (the "Mandatory Redemption Date"), except that if the Fund
does not have funds legally available for the redemption of, or is not otherwise
legally permitted to redeem, all of the required number of shares of ATP which
are subject to mandatory redemption, together with shares of other ATP which are
subject to mandatory redemption under provisions similar to the ATP, or the Fund
otherwise is unable to effect such redemption on or prior to such Mandatory
Redemption Date, the Fund will redeem those shares of ATP and shares of other
ATP which it was unable to redeem on the earliest practicable date on which the
Fund will have such funds available, upon notice to record owners of shares of
ATP and the Auction Agent. The Fund's ability to make a mandatory redemption may
be limited by the provisions of the 1940 Act or Maryland law.

The redemption price in the event of any mandatory redemption will be
$25,000 per share, plus an amount equal to accumulated but unpaid dividends
thereon (whether or not earned or declared) to the date fixed for

redemption plus (in the case of a Dividend Period of not less than one year
only) any redemption premium specified in any applicable Specific Redemption
Provisions.

In connection with any redemption, whether optional or mandatory, the Fund
shall pay, together with the redemption price, an amount equal to all
accumulated dividends, whether or not such dividends have been declared through
the redemption date.

Notwithstanding the provisions for redemption described above, no shares of
ATP may be redeemed unless all dividends in arrears on the outstanding shares of
ATP, and all capital stock of the Fund ranking on a parity with the ATP with
respect to the payment of dividends or upon liquidation, have been or are being
contemporaneously paid or set aside for payment, except in connection with the
liquidation of the Fund in which case all shares of ATP and all shares ranking
in a parity with the ATP must receive proportionate amounts.

Except for the provisions described above, nothing contained in the
Articles limits any right of the Fund to purchase or otherwise acquire any
shares of ATP outside of an Auction at any price, whether higher or lower than
the price that would be paid in connection with an optional or mandatory
redemption, so long as, at the time of any such purchase, there is no arrearage
in the payment of dividends on or the mandatory or optional redemption price
with respect to, any shares of ATP for which Notice of Redemption has been given
and the Fund is in compliance with the 1940 Act ATP Asset Coverage and has
Eligible Assets with an aggregate Discounted Value at least equal to the ATP
Basic Maintenance Amount after giving effect to such purchase or acquisition on
the date thereof. Any shares which are purchased, redeemed or otherwise acquired
by the Fund shall have no voting rights. If fewer than all the outstanding
shares of ATP are redeemed or otherwise acquired by the Fund, the Fund shall
give notice of such transaction to the Auction Agent, in accordance with the
procedures agreed upon by the Board of Directors.

RATINGS

The Fund has obtained the Aaa/AAA Credit Rating from Moody's and Fitch for
the ATP. While there is no assurance that the Aaa/AAA Credit Rating with respect
to the ATP will not be changed, suspended or withdrawn, the Fund will endeavor
to maintain such rating and any failure to maintain such rating would, subject
to cure and certain exceptions, result in mandatory redemption of the ATP. See
"Mandatory Redemption" above. While the Fund does not presently intend to seek a
rating from a rating agency other than Moody's and Fitch, it reserves the right
to do so.

ASSET MAINTENANCE

The Fund is required to satisfy two separate asset coverage requirements
under the terms of the Articles. These requirements are summarized below.

ATP BASIC MAINTENANCE AMOUNT. The Fund is required to maintain as of each
Valuation Date Eligible Assets having in the aggregate a Discounted Value at
least equal to the ATP Basic Maintenance Amount, calculated separately for
Moody's (if Moody's is then rating the ATP) and Fitch (if Fitch is rating the
ATP). For this purpose, the Market Value of the Fund's portfolio securities is
(i) computed based upon one or more pricing services agreements approved by the
Board of Directors or (ii) the lower bid price from two independent dealers in
securities, one of which bids shall be in writing. The Fund has a pricing
services agreement with Reuters Fixed-Income Services and State Street Bank and
Trust Company. The Fund may substitute another pricing service, provided that it
has received notice from Moody's (if Moody's is then rating the ATP) and Fitch
(if Fitch is rating the ATP) that such substitution will not impair the Aaa/AAA
Credit Rating. If the Fund fails to maintain Eligible Assets having in the
aggregate a Discounted Value at least equal to the ATP Basic Maintenance Amount
as of any Valuation Date and such failure is not cured on or before the second
business day after such Valuation Date, the Fund will be required in certain
circumstances to redeem certain of the shares of ATP. See "Redemption" above.

The "ATP Basic Maintenance Amount" as of any Valuation Date is defined as
the dollar amount equal to the sum of

(1) (A) the product of the number of outstanding shares of ATP on
such date multiplied by $25,000; (B) the aggregate amount of dividends that
will have accumulated at the Applicable Rate (whether or not earned or
declared) to and including the first following Dividend Payment Date for
each share of ATP outstanding that follows such Valuation Date (or to the
42nd day after such Valuation Date, if such 42nd day occurs before the
first following Dividend Payment Date); (C) the aggregate amount of
dividends that would accumulate at the then current Maximum Applicable Rate
for a Standard Term Period multiplied by the Volatility Factor on any
shares of ATP outstanding from the first day following the Dividend Payment
Date referred to in (B) above through the 42nd day after such Valuation
Date, but only if such 42nd day occurs after the first day following the
Dividend Payment Date, except that if such Valuation Date occurs during a
Default Period, the dividend for purposes of the calculation would
accumulate at the Default Rate; (D) the amount of anticipated Fund expenses
for the ninety days subsequent to such Valuation Date; (E) any current
liabilities, including, without limitation, indebtedness due within one
year and any redemption premium due with respect to shares of ATP for which
a Notice of Redemption has been given, as of such Valuation Date to the
extent not reflected in any of (1)(A) through (1)(D), and (F) without
duplication, 10% of the exercise price of any call option written by the
Fund and the exercise price of any put option written by the Fund; less

(2) the sum of any cash or the value of any Fund assets irrevocably
deposited by the Fund for the payment of any of (1)(B) through (1)(F)
("value" for purposes of this clause (2) shall mean the Discounted Value of
the security, except that if the security matures prior to the relevant
redemption payment date and is either fully guaranteed by the U.S.
Government or is rated Prime-1 by Moody's and A-1 + by S&P, it will be
valued at its face value).

Pursuant to the Fund's arrangements with Moody's and Fitch, the Fund has
agreed upon a methodology for adjusting the Basic Maintenance Amount in light of
the Swap Arrangement. On any Valuation Date, the Fund will determine the net
amount that would be payable to or payable by the Fund pursuant to the Swap
Arrangement as if the Swap were being terminated as of such Valuation Date (the
"Termination Value"). The Termination Value will be determined using the average
of two market quotations provided by two dealers. If the Termination Value would
be payable by the Fund, the Fund will treat the sum of the Termination Value and
1.5% of the notional amount of the Swap outstanding (the "Adjusted Notional
Amount") as a liability of the Fund in calculating the Basic Maintenance Amount.
If the Termination Value would be payable to the Fund, the Fund will treat the
Discounted Termination Value as Eligible Assets in calculating the Basic
Maintenance Amount. The Discounted Termination Value shall be the difference
between the Termination Value and the Adjusted Notional Amount adjusted by a
Discount Factor which shall be determined by treating (a) the Swap as if it were
a Debt Security, (b) the Swap counterparty as the issuer of such Debt Security
and (c) the time remaining until the Swap's expiration date as the remaining
maturity of such Debt Security.

Solely for purposes of calculating the ATP Basic Maintenance Amount,
interest on borrowed funds outstanding as of any date will be treated as
dividend payments, at a deemed dividend rate equal to the interest rate payable
on such funds on the relevant date, but shall be subject to multiplication by
the larger of the factors that the Fund has been informed by Moody's (if Moody's
is then rating the ATP) or Fitch (if Fitch is then rating the ATP) are
applicable (as described in 1(C) above) only in the event that interest on such
borrowed funds is payable on the basis of a variable rate of interest, and the
interest rate is subject to change within the relevant forty-three-day period.

The discount factors, the criteria used to determine whether the assets
held in the Fund's portfolio are Eligible Assets and guidelines for determining
the market value of the Fund's portfolio holdings have been based on criteria
established in connection with rating the ATP. These factors include, but are
not limited to, the sensitivity of the market value of the relevant asset to
changes in interest rates, the liquidity and depth of the market for the
relevant asset, the credit quality of the relevant asset (for example, the lower
the rating of a debt obligation, the higher the related discount factor) and the
frequency with which the relevant asset is marked to market. In no event shall
the Discounted Value of any asset of the Fund exceed its unpaid principal
balance or face amount as of the date of calculation. The Discount Factor
relating to any asset of the Fund, the ATP Basic Maintenance Amount, the assets
eligible for inclusion in the calculation of the Discounted Value of the Fund's
portfolio and certain definitions and methods of calculation relating thereto
may be changed from time to time by the Fund, without stockholder approval, but
only in the event that the Fund receives written confirmation from Moody's (if
Moody's is then rating

the ATP), Fitch (if Fitch is then rating the ATP) and any other rating agency
which is then rating the ATP and which so requires that any such changes would
not impair the Aaa/AAA Credit Rating. If the Fund fails to maintain the Aaa/AAA
Credit Rating and is unable to restore the Aaa/AAA Credit Rating by the Rating
Default Cure Date, the Fund will be required to redeem the ATP. See "Redemption"
above.

1940 ACT ATP ASSET COVERAGE. The Fund is required under the Articles to
maintain 1940 Act ATP Asset Coverage as of the last business day of each month
in which any shares of ATP are outstanding. If the Fund fails to maintain 1940
Act ATP Asset Coverage and such failure is not cured as of the last business day
of the following month, the Fund will be required to redeem certain shares of
the ATP. See "Redemption" above.

On April 30, 2003, the 1940 Act ATP Asset Coverage was:

Value of Fund assets less liabilities
not constituting senior securities $250,145,181
--------------------------------------- ------------ = 250.15%
Senior securities representing $100,000,000
indebtedness ($0) plus liquidation
value of the ATP

NOTICES. The Fund is required to deliver a certificate with respect to the
calculation of the ATP Basic Maintenance Amount and the value of the portfolio
holdings of the Fund (a "ATP Basic Maintenance Certificate") to the Auction
Agent, and any rating agency which is then rating the ATP and which so requires
as of (a) any Valuation Date on which the Fund fails to have Eligible Assets
with an aggregate Discounted Value at least equal to 125% of the ATP Basic
Maintenance Amount, (b) every fourth Valuation Date for the first year following
the date of original issue of the ATP, (c) if the Fund fails to have Eligible
Assets with an aggregate Discounted Value at least equal to the ATP Basic
Maintenance Amount, (d) the Valuation Date next following the date of redemption
by the Fund of shares of Common Stock which, together with all other shares of
Common Stock purchased during the six months preceding such date, equal in
excess of 1,000,000 shares of Common Stock, and (e) the last Valuation Date of
each fiscal quarter and a Valuation Date during such fiscal quarter randomly
selected by the Fund's independent accountants as provided below, (f) a business
day on or before any cure date relating to the Fund's cure of a failure to have
Eligible Assets with an aggregate Discounted Value at least equal to the ATP
Basic Maintenance Amount, and at any time upon the request of a rating agency
then rating the ATP. Such certificate must be accompanied by a certificate from
the Fund's accountants certifying as to the accuracy of the Fund's calculations.

The Fund is required to deliver to the Auction Agent, and any rating agency
which is then rating the ATP and which so requires, a certificate with respect
to the calculation of the 1940 Act ATP Asset Coverage and the value of the
portfolio holdings of the Fund (a "1940 Act ATP Asset Coverage Certificate") as
of (a) the last Valuation Date of each quarter thereafter, and (b) as of the
business day on or before the Asset Coverage Cure Date relating to the failure
to satisfy the 1940 Act Asset Coverage. Such 1940 Act ATP Asset Coverage
Certificate shall be delivered on or before the third business day after the
relevant Valuation Date or the Asset Coverage Cure Date. Such certificate must
be accompanied by a certificate from the Fund's accountants certifying as to the
accuracy of the Fund's calculations.

In the event that a ATP Basic Maintenance Certificate or 1940 Act ATP Asset
Coverage Certificate or the applicable accountant's certificates with respect
thereto are not delivered within the time periods specified in the Articles, the
Fund shall be deemed to have failed to have Eligible Assets with an aggregate
Discounted Value at least equal to the ATP Basic Maintenance Amount or the 1940
Act ATP Asset Coverage as the case may be, as of the related Valuation Date, and
such failure shall be deemed not to have been cured as of such cure date for
purposes of the mandatory redemption provisions.

LIQUIDATION

In the event of a liquidation, dissolution or winding up of the Fund,
whether voluntary or involuntary, the holders of ATP and any other shares
ranking in parity with the ATP, in preference to the holders of Common Stock,
will be entitled to payment, out of the assets of the Fund or the proceeds
thereof available for distribution to

stockholders after satisfaction of claims of creditors of the Fund, of a
liquidation distribution in the amount of $25,000 per share, plus an amount
equal to accumulated dividends (whether or not earned or declared but without
interest) to the date payment of such distribution is made in full or a sum
sufficient for the payment thereof is set apart with the paying agent. However,
holders of ATP will not be entitled to any premium to which such holder would be
entitled to receive upon redemption of such shares of ATP. After payment of the
full amount of such liquidation distribution, the owners of the ATP will not be
entitled to any further participation in any distribution of assets of the Fund.

If, upon the liquidation, dissolution or winding up of the Fund, whether
voluntary or involuntary, the assets of the Fund or proceeds thereof available
for distribution to stockholders after satisfaction of claims of creditors of
the Fund shall be insufficient to pay in full the liquidation distribution to
which owners of any shares of ATP are entitled, such assets or the proceeds
thereof will be distributed among the owners of the shares of ATP and any other
shares ranking on a parity therewith, ratably.

In the event of any such liquidation, dissolution or winding up of the
Fund, whether voluntary or involuntary, until payment in full is made to the
owners of the shares of ATP of the liquidation distribution to which they are
entitled, no dividend or other distribution shall be made to the holders of
Common Stock and no purchase, redemption or other acquisition for any
consideration by the Fund shall be made in respect of the Common Stock.

A consolidation or merger of the Fund with or into any other company or
companies, or a sale, lease or exchange of all or substantially all of the
assets of the Fund in consideration for the issuance of equity securities of
another company, shall not be deemed to be a liquidation, dissolution or winding
up of the Fund; provided, however, that the consolidation, merger, sale, lease
or exchange does not materially adversely affect any designation, right,
preference or limitation of the ATP or any shares issuable in exchange for
shares of ATP in any such consolidation or merger.

To the extent other shares of ATP are issued by the Fund, including
additional series of ATP or additional shares of the ATP Series A, ATP Series B,
ATP Series C, or ATP Series D, such shares will share equally and on a pro rata
basis with the ATP then outstanding in connection with any liquidation,
dissolution or winding up of the Fund.

VOTING RIGHTS

Except as otherwise indicated herein and except as otherwise required by
applicable law, holders of shares of ATP have equal voting rights with holders
of Common Stock (one vote per share) and vote together with holders of shares of
Common Stock as a single class. Under applicable rules of the Exchange, the Fund
is currently required to hold annual meetings of stockholders.

In connection with the election of the Fund's Board, Holders of shares of
preferred stock, including the ATP, voting as a separate class, are entitled to
elect two of the Fund's Directors, and the remaining Directors will be elected
by holders of Common Stock and the holders of shares of preferred stock,
including the ATP, voting as a single class. In addition, if at any time
dividends on outstanding shares of ATP, including the ATP, shall be unpaid in an
amount equal to two full years' dividends thereon, then the number of members
constituting the Board shall automatically be increased by the smallest number
that, when added to the two Directors elected exclusively by the holders of
shares of preferred stock as described above, would constitute a majority of the
Board as so increased by such smallest number; and at a special meeting of
stockholders which will be called and held as soon as practicable, and at all
subsequent meetings at which Directors are to be elected, the holders of shares
of preferred stock, including the ATP, voting as a separate class, will be
entitled to elect the smallest number of additional Directors that, together
with the two Directors which such holders will be in any event entitled to
elect, constitutes a majority of the total number of Directors of the Fund as so
increased. The terms of office of the persons who are Directors at the time of
that election will continue. If the Fund thereafter shall pay, or declare and
set apart for payment, in full all dividends payable on all outstanding shares
of preferred stock, including the ATP, for all past Dividend Periods, the voting
rights stated in the preceding sentence shall cease, and the terms of office of
all of the additional Directors elected by the holders of shares of preferred
stock including the ATP (but not of the Directors with respect to whose election
the holders of Common Stock were entitled to vote or the two Directors the
holders of shares of preferred stock, including the ATP, have the right to elect
in any event) will terminate automatically. Any shares of ATP

issued after the date hereof shall vote with the ATP as a single class on the
matters described above, and the issuance of any other shares of ATP by the Fund
may reduce the voting power of the ATP.

The voting rights of the Common Stock are non-cumulative, which means that
the holders of more than 50% of the shares of Common Stock and ATP voting for
the election of those Directors subject to election by the Common Stock and ATP
can elect 100% of the Directors subject to election by them if they choose to do
so, and, in such event, the holders of the remaining shares of Common Stock and
ATP voting for the election of Directors will not be able to elect any
Directors. The holders of the Common Stock vote as a single class with the
holders of the ATP on all matters except as described.

The rights of the holders of the Common Stock as set forth in the Articles
may not be modified by a vote of less than a majority of the shares of Common
Stock outstanding.

Also, the affirmative vote of the holders of a majority of the outstanding
preferred stock, including the ATP, voting as a class, is required to (i) amend,
alter or repeal any of the preferences, rights or powers of such class so as to
affect materially and adversely such preferences, rights or powers; (ii)
increase the authorized number of shares of ATP; (iii) create, authorize or
issue shares of any class of capital stock ranking senior to or on a parity with
the ATP with respect to the payment of dividends or the distribution of assets,
or any securities convertible into, or warrants, options or similar rights to
purchase, acquire or receive, such shares of capital stock ranking senior to or
on parity with the ATP or reclassify any authorized shares of capital stock of
the Fund into any shares ranking senior to or on parity with the ATP (except
that, the Board of Directors, without the vote or consent of the holders of ATP,
may from time to time authorize, create and classify, and the Fund may from time
to time issue, series or shares of preferred stock, including ATP, ranking on a
parity with the ATP with respect to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up to the
affairs of the Fund, subject to continuing compliance by the Fund with 1940 Act
ATP Asset Coverage and ATP Basic Maintenance Amount requirements, or in
connection with a refinancing of the ATP); (iv) institute any proceedings to be
adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy
or insolvency proceedings against it, or file a petition seeking or consenting
to reorganization or relief under any applicable federal or state law relating
to bankruptcy or insolvency, or consent to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of the
Fund or a substantial part of its property, or make any assignment for the
benefit of creditors, or, except as may be required by applicable law, admit in
writing its inability to pay its debts generally as they become due or take any
corporate action in furtherance of any such action; (v) create, incur or suffer
to exist, or agree to create, incur or suffer to exist, or consent to cause or
permit in the future (upon the happening of a contingency or otherwise) the
creation, incurrence or existence of any material lien, mortgage, pledge,
charge, security interest, security agreement, conditional sale or trust receipt
or other material encumbrance of any kind upon any of the Fund's assets as a
whole, except (A) liens the validity of which are being contested in good faith
by appropriate proceedings, (B) liens for taxes that are not then due and
payable or that can be paid thereafter without penalty, (C) liens, pledges,
charges, security interests, security agreements or other encumbrances arising
in connection with any indebtedness permitted under clause (vi) below and (D)
liens to secure payment for services rendered including, without limitation,
services rendered by the Fund's custodian and the Auction Agent, or (vi) 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 from banks for temporary or emergency purposes or as may be permitted by
the Fund's investment restrictions; provided, however, that transfers of assets
by the Fund subject to an obligation to repurchase shall not be deemed to be
indebtedness for purposes of this provision to the extent that after any such
transaction the Fund has Eligible Assets with an aggregate Discounted Value at
least equal to the ATP Basic Maintenance Amount as of the immediately preceding
Valuation Date.

The affirmative vote of the Holders of a majority of the outstanding shares
of ATP, voting as a separate class, will also be required to approve any plan of
reorganization adversely affecting such shares or any action requiring a vote of
security holders under Section 13(a) of the 1940 Act including, among other
things, changes in the Fund's investment objective or changes in the investment
restrictions described as fundamental policies under "Investment Objective and
Policies-Investment Restrictions." The class vote of Holders of shares of ATP
described above will in each case be in addition to a separate vote of the
requisite percentage of shares of Common Stock necessary to authorize the action
in question. In addition, the affirmative vote of the holders of a majority of
the outstanding shares of each series of ATP, voting separately from any other
series, shall be required with respect to

any matter that materially and adversely affects the rights, preferences, or
powers of such series in a manner different from that of other series of classes
of the Fund's shares of capital stock. For purposes of the foregoing, no matter
shall be deemed to adversely affect any right, preference or power unless such
matter (i) alters or abolishes any preferential right of such series; (ii)
creates, alters or abolishes any right in respect of redemption of such series;
or (iii) creates or alters (other than to abolish) any restriction on transfer
applicable to such series.

The Board of Directors may amend certain provisions of the Articles without
any vote or consent of the holders of ATP or any other stockholder of the Fund.
See "Rating Agency Guidelines" and Section 6(j), Part I of the form of Articles
filed as an Exhibit to the Registration Statement of which this Prospectus is a
part. Definitions and provisions in the Articles subject to amendment by action
of the Board (subject to rating agency approval) include the following:

ATP Basic Maintenance Amount
ATP Basic Maintenance Certificate
Asset Coverage Cure Date
Deposit Securities
Discounted Value
Exposure Period
Fitch Discount Factor
Fitch Eligible Assets
Fitch Industry Classification
Market Value (including certain provisions relevant to futures and options
transactions)
Maximum Applicable Rate
Minimum Applicable Rate
Moody's Discount Factor
Moody's Eligible Assets
Moody's Industry Classification
1940 Act Asset Coverage Cure Date
1940 Act ATP Asset Coverage
Short Term Money Market Instruments
Volatility Factor
Last Paragraph of Section 12

In addition, the Board of Directors may amend the definition of Maximum
Applicable Rate to increase the percentage amount by which the Reference Rate is
multiplied to determine the Maximum Applicable Rate shown therein without the
vote or consent of the holders of shares of the ATP, including the ATP, or any
other stockholder of the Fund and without confirmation of Moody's, Fitch or any
Other Rating Agency, after consultation with the Broker-Dealers.

The foregoing voting provisions will not apply with respect to the ATP if,
at or prior to the time when a vote is required, such shares have been (i)
redeemed or (ii) called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.

DETERMINATION OF NET ASSET VALUE

Net asset value of the Common Stock will be determined no less frequently
than as of the close of regular trading on the Exchange (generally 4:00 p.m. New
York time) on the last business day of each week (generally Friday). It will be
determined by dividing the value of the net assets of the Fund by the total
number of shares of Common Stock outstanding. For the purpose of determining the
NAV per share of the Common Stock, the value of the Fund's net assets shall be
deemed to equal the value of the Fund's assets less (i) the Fund's liabilities,
(ii) accumulated and unpaid dividends on the outstanding ATP and (iii) the
aggregate liquidation value (i.e., $25,000 per share, plus accrued and unpaid
dividends to the date of liquidation) of the outstanding ATP. In making its NAV
calculation of the Fund's assets other than the determination of the Discounted
Value of such assets pursuant to the investment guidelines of the rating
agencies then rating the ATP, portfolio securities that are actively traded in
the over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, will be valued at the most recently
quoted bid price provided by the principal market makers. The Fund also utilizes
prices supplied by its Custodian from Reuters Fixed-Income Services and FT
Interactive Data. Any security or option for which the primary market is on an
exchange will be valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, the last bid price quoted on
such day. Options for which the primary market is not on an exchange or which
are not listed on an exchange will be valued at market value or fair value if no
market exists. Securities and assets for which market quotations are not readily
available will be valued at fair value as determined in good faith by or under
the direction of the Board of Directors of the Fund. While no single standard
for determining fair value exists, as a general rule, the current fair value of
a security would appear to be the amount which the Fund could expect to receive
upon its current sale. Some, but not necessarily all, of the

general factors which may be considered in determining fair value include: (i)
the fundamental analytical data relating to the investments; (ii) the nature and
duration of restrictions on disposition of the securities; and (iii) an
evaluation of the forces which influence the market in which these securities
are purchased and sold. Without limiting or including all of the specific
factors which may be considered in determining fair value, some of the specific
factors include: type of security, financial condition of the issuer, cost at
date of purchase, special reports prepared by analysts, information as to any
transaction or offers with respect to the security, existence of merger
proposals or tender offers affecting the securities, price and extent of public
trading in similar securities of the issuer or comparable companies, and other
relevant matters.

Short-term debt securities which mature in less than sixty days will be
valued at amortized cost if their term to maturity from the date of acquisition
by the Fund was less than sixty days or by amortizing their value on the 61st
day prior to maturity if their term to maturity from the date of acquisition by
the Fund was more than sixty days, unless this method is determined by the Board
of Directors not to represent fair value. Repurchase agreements will be valued
at cost plus accrued interest.

DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN

The Fund distributes to stockholders substantially all of its net
investment income in monthly dividends on or about the last day of each month.
Capital gains, if any, net of capital losses, are distributed annually, with
such distribution to be declared in December of each year, or otherwise as
required by Treasury regulations then in effect. Stockholders are informed of
the tax consequences of the Fund's distributions after the end of the Fund's
fiscal year. See "Taxation."

Stockholders may elect to have all distributions of dividends and capital
gains paid in cash, which will be paid by check and mailed directly to the
stockholder by EquiServe (the "Dividend Paying Agent"). All distributions from
the Fund will be automatically reinvested by the Dividend Paying Agent under the
Automatic Dividend and Distribution Investment Plan (the "Plan"), unless
Stockholders elect not to participate in the Plan. Stockholders may elect not to
participate in the Plan and to have all distributions of dividends and capital
gains paid in cash by sending written instructions to the Dividend Paying Agent
at the address set forth below.

If the Directors of the Fund declare a dividend or determine to make a
capital gains distribution payable either in shares of the Fund or in cash, as
stockholders may have elected, non-participants in the Plan will receive cash
and participants in the Plan will receive the equivalent distribution in shares.
If the market price of the shares on the payment date for the dividend or
distribution is equal to or exceeds their NAV as determined on the payment date,
participants will be issued shares of the Fund at a value equal to the higher of
NAV or 95% of the market price. The amount treated as received by the
participants is an amount equal to the fair market value of those shares. If NAV
exceeds the market price of the shares at such time, or if the Fund declares a
dividend or other distribution payable only in cash, the Dividend Paying Agent
will, as agent for Plan participants, buy shares in the open market, on the
Exchange or elsewhere, for the participants' accounts. If, before the Dividend
Paying Agent has completed its purchases, the market price exceeds the NAV of
the shares of Common Stock, the average purchase price per share of Common Stock
paid by the Dividend Paying Agent may exceed the asset value of the shares,
resulting in the acquisition of fewer shares than if the dividend or
contribution had been paid in shares issued by the Fund.

In connection with the Offer, participants in the Fund's Dividend
Reinvestment Plan (the "Plan") will be issued Rights for the shares of Common
Stock held in their accounts in the Plan as of the Record Date. Participants
wishing to exercise such Rights must exercise such Rights in accordance with the
procedures set forth below in "The Offer-Exercise of Rights" and "The
Offer-Payment for Shares." Such Rights will not be exercised automatically by
the Plan.

Participants in the Plan have the option of making additional cash payments
each quarter to the Dividend Paying Agent, in any amount from $100 to $5,000,
for investment in the Fund's shares. The Dividend Paying Agent uses all funds
received from participants to purchase Fund shares in the open market on or
about the last day of each calendar quarter. Participant's cash payments are
also used to acquire Fund shares under the same procedure as that used for
reinvestment of dividends and distributions. To allow ample time for receipt and
processing by the Dividend Paying Agent, participants should send voluntary cash
payments to be received by the Dividend Paying Agent not later than five
business days before the last day of each calendar quarter. To avoid unnecessary
cash

accumulations, cash payments received after that time and cash payments received
more than thirty days prior to these dates will be returned by the Dividend
Paying Agent and interest will not be paid on any uninvested cash payments. A
participant may withdraw a voluntary cash payment by written notice, if the
notice is received by the Dividend Paying Agent not less than forty eight hours
before such payment is to be invested. There is a $0.75 fee for each cash
purchase under the Plan.

Participants in the Plan may withdraw from the Plan upon written notice to
the Dividend Paying Agent. When a participant withdraws from the Plan or upon
termination of the Plan as provided below, certificates for whole shares of
Common Stock credited to the participant's account under the Plan will be issued
and a cash payment will be made for any fraction of a share of Common Stock
credited to such account.

The Dividend Paying Agent will maintain all stockholders' accounts in the
Plan and will furnish written confirmation of all transactions in the account,
including information needed by stockholders for tax records. Shares of Common
Stock in the account of each Plan participant (other than participants whose
shares of Common Stock are registered in the name of banks, brokers, nominees or
other third parties) will be held by the Dividend Paying Agent in
non-certificated form in the name of the participant, and each stockholder's
proxy will include those shares of Common Stock purchased pursuant to the Plan.

In the case of stockholders such as banks, brokers or nominees which hold
shares of Common Stock for others who are the beneficial owners, the Dividend
Paying Agent administers the Plan on the basis of the number of shares of Common
Stock certified from time to time by the record stockholders as representing the
total amount registered in the record stockholder's name and held for the
account of beneficial owners who are to participate in the Plan. Investors whose
shares of Common Stock are held in the name of banks, brokers or nominees must
confirm with such entities that participation in the Plan is possible. Those who
participate in the Plan may subsequently elect not to participate by notifying
such entities.

There is no charge to participants for reinvesting dividends or
distributions, except for certain brokerage commissions, as described below. The
Dividend Paying Agent's fees for the handling of the reinvestment of dividends
and distributions will be paid by the Fund. There will be no brokerage
commissions charged with respect to shares issued directly by the Fund. However,
each participant will pay a pro rata share of brokerage commissions incurred
with respect to the Dividend Paying Agent's open market purchases in connection
with the reinvestment of dividends or distributions.

Participants in the Plan should be aware that they will realize capital
gains and income for tax purposes upon dividends and distributions although they
will not receive any payment of cash. Experience under the Plan may indicate
that changes are desirable. Accordingly, the Fund reserves the right to amend or
terminate the Plan as applied to any dividend or distribution paid subsequent to
written notice of the change sent to the participants in the Plan at least
ninety days before the record date for such dividend or distribution. The Plan
also may be amended or terminated by the Dividend Paying Agent on at least
ninety days' written notice to participants in the Plan. All correspondence or
inquiries concerning the Plan should be directed to EquiServe, P.O. Box 43011,
Providence, Rhode Island 02940-3011 or by calling toll free at 1-800-426-5523.

CONVERSION TO OPEN-END STATUS AND REPURCHASE OF SHARES

CONVERSION TO OPEN-END STATUS

The Fund's Board of Directors may elect at any time to submit to the
holders of the Common Stock and the ATP a proposal to convert the Fund to an
open-end investment company and in connection therewith to redeem or otherwise
retire the ATP (subject to any Specific Redemption Provisions) as would be
required upon such conversion by the 1940 Act. In determining whether to
exercise its discretion to submit this issue to stockholders, the Board of
Directors would consider all factors then relevant, including the relationship
of the market price of the Common Stock to NAV, the extent to which the Fund's
capital structure is leveraged and the possibility of re-leveraging, the spread,
if any, between yields on "high-yield" securities in the Fund's portfolio as
compared to interest and dividend charges on senior securities and general
market and economic conditions. In addition to any

vote required by Maryland law, conversion of the Fund to an open-end investment
company would require the affirmative vote of the holders of a majority (as
defined in the 1940 Act) of each class of the shares entitled to be voted on the
matter. Stockholders of an open-end investment company may require the company
to redeem their shares at any time (except in certain circumstances as
authorized by or under the 1940 Act) at their NAV, less such redemption charges,
if any, as might be in effect at the time of redemption. If the Fund converted
to an open-end investment company, it could be required to liquidate portfolio
securities to meet requests for redemption, and the Common Stock would no longer
be listed on the Exchange. In the event the Fund converts to open-end status,
the Fund would only be able to borrow through bank borrowings within certain
limits and would not be allowed to have preferred stock, thus requiring a
redemption of the ATP.

REPURCHASE OF COMMON STOCK

Shares of closed-end management investment companies frequently trade at a
discount from NAV but in some cases trade at a premium. In recognition of the
possibility that the Fund's Common Stock might similarly trade at a discount,
the Fund may from time to time take action to attempt to reduce or eliminate a
market value discount from NAV by repurchasing its Common Stock in the open
market or by tendering for its own shares at NAV. There can be no assurance that
the Board will, in fact, decide to undertake either of these actions or, if
undertaken, that such actions will result in the Fund's Common Stock trading at
a price that is equal to or approximates its NAV. The Board does not have a
policy with respect to a periodic consideration of the appropriateness of taking
action to repurchase or tender for the Fund's shares. In addition, the Board
will not necessarily announce when it has given consideration to these matters.
Notwithstanding the foregoing, so long as any shares of ATP are outstanding, the
Fund may not purchase, redeem or otherwise acquire any Common Stock unless (1)
all accumulated dividends on the ATP have been paid or set aside for payment
through the date of such purchase, redemption or other acquisition and (2) at
the time of such purchase, redemption or acquisition the ATP Basic Maintenance
Amount and the 1940 Act ATP Asset Coverage (determined after deducting the
acquisition price of the Common Stock) are met. Any tender offer will be made
and holders of Common Stock notified in accordance with the requirements of the
Securities Exchange Act of 1934 and the 1940 Act, either by publication or
mailing or both.

Although the Board of Directors believes that share repurchases and tenders
generally would have a favorable effect on the market price of the Fund's Common
Stock, it should be recognized that the acquisition of shares by the Fund will
decrease the total assets of the Fund and, therefore, have the effect of
increasing the Fund's expense ratio. In addition, any purchase by the Fund of
its Common Stock as at a time when the shares of ATP are outstanding will
increase the leverage applicable to the outstanding Common Stock then remaining.
Repurchases of Common Stock may result in the Fund being required to redeem
shares of ATP to satisfy asset coverage requirements.

CUSTODIAN, AUCTION AGENT, REGISTRAR,
TRANSFER AGENT AND PAYING AGENT

State Street Bank and Trust Company, with principal place of business at
225 Franklin Street, Boston, Massachusetts 02110, serves as the custodian of
Fund's securities and cash ("Custodian"). Its services include holding
securities, delivering securities, registering securities, opening and
maintaining bank accounts, collecting income, paying of Fund monies, and
executing certain documents for tax purposes. In accordance with SEC rules, Fund
assets may be outside the United States in the custody of non-U.S. banks and
securities depositories.

Deutsche Bank Trust Company Americas, as successor to Bankers Trust
Company, has its principal business address at 60 Wall Street, New York, New
York 10005-2958. Deutsche Bank Trust Company Americas acts as the Registrar,
Transfer Agent, Paying Agent and Auction Agent for the ATP.

EquiServe Trust Company, N.A., as assignee of State Street Bank and Trust
Company, whose principal business address is at 150 Royall Street, Canton,
Massachusetts 02021, serves as the Transfer Agent, Registrar and Dividend Paying
Agent for the Fund's Common Stock.

REPORTS TO STOCKHOLDERS

The Fund will send unaudited semi-annual and audited annual reports to
stockholders, including a list of the portfolio investments held by the Fund.

LEGAL MATTERS

Certain legal matters with respect to the Offer will be passed upon by
Goodwin Procter LLP, Boston, Massachusetts. Richard E. Floor, a Director and the
Secretary of the Fund, is a partner of Goodwin Procter LLP through a
professional corporation. An opinion regarding the valid issuance of the Common
Stock and certain other matters of Maryland law will be rendered by Venable,
Baetjer and Howard, LLP, Baltimore, Maryland. Goodwin Procter LLP will rely as
to matters of Maryland law upon such opinion.

INDEPENDENT PUBLIC ACCOUNTANTS

The firm of KPMG LLP ("KPMG"), with principal business address at 99 High
Street, Boston, Massachusetts 02110, has acted as the Fund's independent public
accountants since June 27, 2002. Prior to that date, Arthur Andersen LLP had
acted as the Fund's independent public accountants since the Fund's inception.
The services provided by KPMG consist of the examination of the Fund's annual
financial statements, semi-annual review of the Fund's financial statements,
assistance and consultation in connection with the Securities and Exchange
Commission filings, review of tax and certain compliance matters on behalf of
the Fund, as well as certain additional services in connection with the Fund's
compliance with rating agency guidelines.

EXPERTS

The Fund's statement of assets and liabilities, including the schedule of
investments, as of December 31, 2002, and the related statement of operations,
statement of changes in net assets and financial highlights for the year then
ended, presented in the Fund's Annual Report for the fiscal year ended December
31, 2002 and incorporated herein by reference, have been audited by the Fund's
independent public accountants, KPMG, as set forth in their report with respect
thereto, and are included herein upon the authority of said firm as experts in
accounting and auditing in giving said report.

The statement of changes in net assets for the year ended December 31,
2001, together with the financial highlights and the information regarding
senior securities for each of the years ended December 31, 2001, 2000, 1999,
1998, 1997, 1996, 1995, 1994 and 1993 were audited by Arthur Andersen LLP, the
Fund's former independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports. After reasonable efforts, the Fund has
been unable to obtain written consent from Arthur Andersen LLP to the
incorporation by reference such financial statements in this prospectus. Such
consents have therefore been omitted in reliance upon Rule 437a of the
Securities Act. Because Arthur Andersen LLP has not consented to the
incorporation by reference of such financial statements in the prospectus, you
may not be able to recover against Arthur Andersen LLP under Section 11 of the
Securities Act for any untrue statements of a material fact contained in such
financial statements or any omissions to state a material fact required to be
stated therein, if any.

ADDITIONAL INFORMATION

The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act and in accordance therewith
files, reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed by the Fund, including the
Fund's Code of Ethics, can be inspected without charge at the public reference
facilities of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of such materials may be obtained from the
Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at the prescribed rates. The
Commission maintains a Website at http://www.sec.gov containing reports and
information statements and other information regarding registrants, including
the Fund, that file electronically with

the Commission. Reports, proxy statements and other information concerning the
Fund can also be inspected at the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.

Additional information regarding the Fund is contained in the Registration
Statement on Form N-2, including the Statement of Additional Information
comprising a part thereof and any amendments, exhibits and schedules thereto,
relating to such shares filed by the Fund with the Commission. This Prospectus
does not contain all of the information set forth in the Registration Statement,
including the Statement of Additional Information comprising a part thereof and
any amendments, exhibits and schedules thereto. For further information with
respect to the Fund and the shares offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of the Articles or any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. A copy of
the Registration Statement may be inspected without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part thereof may
be obtained from the Commission upon the payment of certain fees prescribed by
the Commission.

FINANCIAL STATEMENTS

The Fund's Annual Report for the fiscal year ended December 31, 2002, which
includes audited financial statements and the related Independent Auditors'
Report of KPMG, accompanies this Prospectus and is incorporated herein by
reference in all respects except for the information set forth in the Letter to
Shareholders included therein. Any statement contained in the Fund's Annual
Report that was incorporated herein shall be deemed modified or superseded for
purposes of this Prospectus to the extent a statement contained in this
Prospectus varies from such statement. Any such statement so modified or
superseded shall not, except as so modified or superseded, be deemed to
constitute a part of this Prospectus. The Fund will furnish, without charge, a
copy of its Annual Report to each shareholder upon request. If you would like a
copy of the Annual Report, you may write to Ellen E. Terry, c/o The New America
High Income Fund, Inc., at 33 Broad Street, Boston, Massachusetts 02109 or you
may call the Fund collect at (617) 263-6400.

FINANCIAL STATEMENTS
(to be filed by amendment)

APPENDIX A
RATINGS OF CORPORATE OBLIGATIONS

MOODY'S INVESTORS SERVICE

A brief description of the applicable Moody's ratings symbols and their meanings
(as published by Moody's) follows:

DEBT RATINGS

Aaa Bonds and preferred stock which are rated Aaa are judged to be of
the best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edged." Interest
payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of
such issues.

Aa Bonds and preferred stock which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk in Aa-rated
bonds appear somewhat larger than those securities rated Aaa.

A Bonds and preferred stock which are rated A possess many
favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime
in the future.

Baa Bonds and preferred stock which are rated Baa are considered as
medium grade obligations, (i.e., they are neither highly
protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative
characteristics as well.

Ba Bonds and preferred stock which are rated Ba are judged to have
speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B Bonds and preferred stock which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.

Caa Bonds and preferred stock which are rated Caa are of poor
standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.

Ca Bonds and preferred stock which are rated Ca represent
obligations which are speculative in a high degree. Such issues
are often in default or have other marked shortcomings.

C Bonds and preferred stock which are rated C are the lowest rated
class of bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment
standing.

A-1

NOTE Moody's applies numerical modifiers 1, 2 and 3 in 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 its generic rating category.

PRIME RATING SYSTEM

Moody's short-term ratings are opinions of the ability of issuers to honor
senior financial obligations and contracts. Such obligations generally have an
original maturity not exceeding one year, unless explicitly noted.

Moody's employs the following designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:

Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics:

-- Leading market positions in well-established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.

-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers (or supporting institutions) rated Prime-2 have a strong ability to
repay senior short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above, but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

Issuers (or supporting institutions) rated Prime-3 have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt-protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

A-2

FITCH RATINGS, INC.

A brief description of the applicable Fitch ratings symbols and their meanings
(as published by Fitch) follows:

INTERNATIONAL LONG-TERM CREDIT RATINGS

INVESTMENT GRADE

AAA Highest credit quality. 'AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.

AA Very high credit quality. 'AA' ratings denote a very low
expectation of credit risk. They indicate very strong capacity
for timely payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.

A High credit quality. 'A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or
in economic conditions than is the case for higher ratings.

BBB Good credit quality. 'BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions
are more likely to impair this capacity. This is the lowest
investment grade category.

SPECULATIVE GRADE

BB Speculative. 'BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to
be met. Securities rated in this category are not investment
grade.

B Highly speculative. 'B' ratings indicate that significant credit
risk is present but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable
business and economic environment.

CCC, CC High default risk. Default is a real possibility. Capacity for
AND C meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A 'CC' rating
indicates that default of some kind appears probable. 'C' ratings
signal imminent default.

DDD, DD, D (Default.) The ratings of obligations in this category are based
on their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated
with any precision, the following serve as general guidelines.
'DDD' obligations have the highest potential for recovery, around
90% - 100% of outstanding amounts and accrued interest. "DD'
indicates potential recoveries in the range of 50% - 90% and 'D'
the lowest recovery potential, i.e., below 50%.

A-3

Entities rated in this category have defaulted on some or all of
their obligations. Entities rated 'DDD' have the highest prospect
for resumption of performance or continued operation with or
without a formal reorganization process. Entities rated 'DD' and
'D' are generally undergoing a formal reorganization or
liquidation process; those rated 'DD' are likely to satisfy a
higher portion of their outstanding obligations, while entities
rated 'D' have a poor prospect of repaying all obligations.

INTERNATIONAL SHORT-TERM CREDIT RATINGS

A short-term credit rating has a time horizon of less than 12 months for
most obligations, or up to three years for U.S. public finance securities, and
thus places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner.

F1 HIGHEST CREDIT QUALITY. Indicates the strongest capacity for
timely payment of financial commitments; may have an added "+" to
denote an exceptionally strong credit feature.

F2 GOOD CREDIT QUALITY. A satisfactory capacity for timely payment
of financial commitments, but the margin of safety is not as
great as in the case of the higher ratings.

F3 FAIR CREDIT QUALITY. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.

B SPECULATIVE. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.

C HIGH DEFAULT RISKS. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained,
favorable business and economic environment.

D DEFAULT. Denotes actual or imminent payment default.

NOTES TO LONG-TERM AND SHORT-TERM RATINGS:

"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the 'AAA' Long-Term rating
category, to categories below 'CCC', or to Short-term ratings other than 'F1'.

'NR' indicates that Fitch Ratings does not rate the issuer or issue in question.

'Withdrawn': A rating is withdrawn when Fitch Ratings deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.

RatingWatch: Ratings are placed on Rating Watch to notify investors that there
is a reasonable probability of a rating change and the likely direction of such
change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. RatingWatch is typically dissolved over a relatively
short period.

A Rating Outlook indicates the direction a rating is likely to move over a one
to two-year period. Outlooks may be positive, stable or negative. A positive or
negative Rating Outlook does not imply a rating change is inevitable. Similarly,
ratings for which outlooks are 'stable' could be upgraded or downgraded before
an outlook moves to positive or negative if circumstances warrant such an
action. Occasionally, Fitch Ratings may be unable to identify the fundamental
trend. In these cases, the Rating Outlook may be described as evolving.

A-4

INSURER FINANCIAL STRENGTH RATINGS

The Insurer Financial Strength Rating (IFS Rating) provides an assessment of the
financial strength of an insurance organization, and its capacity to meet senior
obligations to policyholders and contractholders on a timely basis. The IFS
Rating is assigned to the insurance organization itself, and no liabilities or
obligations of the insurer are specifically rated unless otherwise stated (for
example, Fitch Ratings may separately rate the debt obligations of an insurer).
The IFS Rating can be assigned to insurance and reinsurance companies in all
insurance sectors, including the life & health, property & casualty, mortgage,
financial guaranty and title insurance sectors, as well as managed care
companies such as health maintenance organizations.

The IFS Rating does not address the willingness of an insurance organization's
management to honor its company's obligations, nor does the IFS Rating address
the quality of an insurer's claims handling services. In the context of the IFS
Rating, the timeliness of payments is considered relative to both contract
and/or policy terms and also recognizes the possibility of acceptable delays
caused by circumstances unique to the insurance industry, including claims
reviews, fraud investigations and coverage disputes.

The IFS Rating is based on a comprehensive analysis of relevant factors that in
large part determine an insurance organization's financial strength, including
its regulatory solvency characteristics, liquidity, operating performance,
financial flexibility, balance sheet strength, management quality, competitive
positioning and long-term business viability.

The IFS Rating is an international-scale rating, and incorporates relevant
economic and political risks that could impair an insurance organization's
capacity to meet its obligations. As a result, in most cases it would be rare
for an insurance organization to achieve an IFS Rating that would be higher than
the long-term, international-scale local currency ratings assigned to the
obligations of its sovereign state of domicile. One exception could be cases in
which foreign parental support commitments are in place. Other exceptions could
include cases in which, due to the international nature of an insurer's
business, a major portion of its business and financial resources are not
exposed to the economic and political risks of its sovereign state. Since the
IFS Rating is not assigned to any specific obligations of the insurer, the
rating does not take into account the potential for government restrictions that
could prevent specific obligations from being met on a timely basis, such as
exchange controls placed on obligations owed in a foreign currency.

The IFS Rating uses the same ratings scale and symbols used by Fitch Ratings for
its international ratings of long-term debt obligations and issuers. However,
the definitions associated with the ratings reflect the unique aspects of the
IFS Rating within an insurance industry context. Ratings in the 'AA' through
'CCC' categories may be amended with a (+) or (-) sign to show relative standing
within the major rating category. Ratings of 'BBB-' and higher are considered to
be 'Secure', and those of 'BB+' and lower are considered to be 'Vulnerable'.

AAA EXCEPTIONALLY STRONG. Insurers assigned this highest rating are
viewed as possessing exceptionally strong capacity to meet
policyholder and contract obligations. For such companies, risk
factors are minimal and the impact of any adverse business and
economic factors is expected to be extremely small.

AA VERY STRONG. Insurers are viewed as possessing very strong
capacity to meet policyholder and contract obligations. Risk
factors are modest, and the impact of any adverse business and
economic factors is expected to be very small.

A STRONG. Insurers are viewed as possessing strong capacity to meet
policyholder and contract obligations. Risk factors are moderate,
and the impact of any adverse business and economic factors is
expected to be small.

BBB GOOD. Insurers are viewed as possessing good capacity to meet
policyholder and contract obligations. Risk factors are somewhat
high, and the impact of any adverse business and economic factors
is expected to be material, yet manageable.

A-5

BB MODERATELY WEAK. Insurers are viewed as moderately weak with an
uncertain capacity to meet policyholder and contract obligations.
Though positive factors are present, overall risk factors are
high, and the impact of any adverse business and economic factors
is expected to be significant.

B WEAK. Insurers are viewed as weak with a poor capacity to meet
policyholder and contract obligations. Risk factors are very
high, and the impact of any adverse business and economic factors
is expected to be very significant.

CCC, CC, C VERY WEAK. Insurers rated in any of these three categories are
viewed as very weak with a very poor capacity to meet
policyholder and contract obligations. Risk factors are extremely
high, and the impact of any adverse business and economic factors
is expected to be insurmountable. A 'CC' rating indicates that
some form of insolvency or liquidity impairment appears probable.
A 'C' rating signals that insolvency or a liquidity impairment
appears imminent.

DDD, DD, D DISTRESSED. These ratings are assigned to insurers that have
either failed to make payments on their obligations in a timely
manner, are deemed to be insolvent, or have been subjected to
some form of regulatory intervention. Within the DDD-D range,
those companies rated 'DDD' have the highest prospects for
resumption of business operations or, if liquidated or wound
down, of having a vast majority of their obligations to
policyholders and contractholders ultimately paid off, though on
a delayed basis (with recoveries expected in the range of
90-100%). Those rated 'DD' show a much lower likelihood of
ultimately paying off material amounts of their obligations in a
liquidation or wind down scenario (in a range of 50-90%). Those
rated 'D' are ultimately expected to have very limited liquid
assets available to fund obligations, and therefore any ultimate
payoffs would be quite modest (at under 50%).

NOTES: "+" or "-" may be appended to a rating to indicate the relative
position of a credit within the rating category. Such suffixes
are not added to ratings in the "AAA" category or to ratings
below the "CCC" category.

A Rating Outlook indicates the direction a rating is likely to
move over a one to two-year period. Outlooks may be positive,
stable or negative. A positive or negative Rating Outlook does
not imply a rating change is inevitable. Similarly, ratings for
which outlooks are 'stable' could be upgraded or downgraded
before an outlook moves to positive or negative if circumstances
warrant such an action. Occasionally, Fitch Ratings may be unable
to identify the fundamental trend. In these cases, the Rating
Outlook may be described as evolving.

Rating Watch: Ratings are placed on Rating Watch to notify
investors that there is a reasonable probability of a rating
change and the likely direction of such change. These are
designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings
may be raised, lowered or maintained. Rating Watch is typically
resolved over a relatively short period.

SERVICER RATINGS

Residential, multifamily, and commercial mortgage loans can be serviced by a
combination of primary, master, and/or special servicers. Many transactions have
all three types of servicers present, while others may only have one or two.
Some of the reasons for the various structures are age of the transaction,
complexity of the loans, strength of the primary servicer, current or
anticipated delinquency, and need for advancing.

Primary servicers responsibilities typically include: collecting monthly
principal, interest, and escrow payments from individual mortgagors; remitting
and reporting to the master servicer; and monitoring delinquent and problem
loans, which may be directly handled by the special servicer. For commercial,
which includes multifamily, primary servicers are also responsible for
performing property inspections and collecting and analyzing property financial

A-6

statements. In the absence of a master servicer, the primary servicer is
responsible for the reporting and remitting of funds directly to the trustees
and/or advancing principal and interest payments on delinquent loans. When there
is no special servicer, the primary servicer would be directly handling the
work-out of sub-performing and/or delinquent loans.

Master servicers are responsible for the oversight of primary servicers, with
respect to the primary servicer's responsibilities; and providing liquidity to a
transaction by advancing principal and interest, as well as certain property
protection expenses, on delinquent loans. If the transaction requires a special
servicer, the master servicer will insure the smooth transfer from the primary
servicer to the special servicer and monitor the ultimate disposition of problem
loans.

Special servicers are responsible for maximizing recoveries on nonperforming
loans and real estate owned assets, and are key to maintaining the credit
quality of a pool containing nonperforming loans and REO assets. The specific
arrangement varies from one transaction to another, however, typically the loans
are transferred to the special servicer at some pre-determined point based on
delinquency and/or other performance measures. Currently, in residential
transactions, the use of a designated special servicer is not as common as in
the commercial products, however, the practice is becoming more widespread,
particularly in loan products which are expected to have high delinquencies and
therefore losses.

RATING DEFINITIONS

The servicer ratings are an indication of a servicer's ability to effectively
service commercial mortgage backed securities (CMBS) and residential mortgage
backed securities (RMBS) transactions. The ratings incorporate Fitch Ratings'
analysis of the servicer's experience in the servicing business, financial
condition, management, staff, training programs, procedures, controls, and
systems among others. Fitch rates commercial mortgage servicers on a scale of
1-4 and residential mortgage servicers on a scale of 1-5, with 1 being the
highest rating. The ratings are written with either a C or R first (indicating
commercial or residential), the second letter will designate the type of
servicer (P - primary, M - master, S - special), with the servicer level
following (S1 - highest, etc.).

LEVEL 1 SERVICER RATING (CPS1, CMS1, CSS1, RPS1, RMS1, RSS1)

Servicers that receive a level one (1) rating must have proven abilities and
performance of the highest standards. The servicers at level one are expected to
have all areas of their company operating at top efficiency and productivity.
Some of the characteristics of a level one (1) servicer are:

- Demonstrated expertise in servicing a diverse portfolio, i.e. loan
type, property type, and geographic concentration among others.
- Highly seasoned management team with a substantial working history
together.
- Stable employee base with little turnover.
- Very strong and stable financial resources.
- Very well documented and complete policies and procedures, which are
readily available to all employees.
- Fully integrated, flexible systems with versatile reporting
capabilities.

LEVEL 2 SERVICER RATING (CPS2, CMS2, CSS2, RPS2, RMS2, RSS2)

Servicers that receive a level two (2) rating have demonstrated high performance
in all relevant categories. Some of the characteristics of a level two (2)
servicer are:

A-7

- Effective management of a diverse portfolio.
- Seasoned management team with a history of working together.
- Stable employee base.
- Strong, stable financial resources.
- Well documented and complete policies and procedures.
- Strong systems and reporting capabilities.

LEVEL 3 SERVICER RATING (CPS3, CMS3, CSS3, RPS3, RMS3, RSS3)

Servicers that receive a level three (3) rating will exhibit the following
characteristics: Demonstrate proficiency in servicing diverse product groups.

- Ability to meet investor requirements.
- Adequate financial resources for its portfolio size.
- Effective internal controls.
- Proven proficiency in staffing and training.
- Established comprehensive policies and procedures.
- A master servicer must have experience and controls in place for
monitoring primary servicers and other sub-servicers.
- A special servicer must demonstrate adequate workout and disposition
experience.

LEVEL 4 SERVICER RATING (CPS4, CMS4, CSS4, RPS4, RMS4, RSS4)

Servicers that receive a level four (4) rating must demonstrate servicing
proficiency comparable to a level three (3) rated servicer. However, due to some
aspect or situation, Fitch Ratings believes continued surveillance is warranted.
Servicers at this rating level may not be acceptable for servicing Fitch Ratings
covered CMBS or RMBS transactions unless additional support or structural
features are incorporated. Listed below are a few situations that could cause
the assignment of a level four (4) rating to an otherwise fully acceptable
servicer:

- Length of time or experience in servicing type or product type.
- Recent event that has not had time to be resolved or its effect fully
assessed (i.e. merger, acquisition, change in management, or system
conversion, among others).
- Specific concern or problem with the servicer.

A level four (4) servicer might be upgraded to a level three (3) if and when the
circumstance(s) in question is positively resolved, as long as all other
features of the operation remain consistent.

LEVEL 5 SERVICER RATING (RMS5, RPS5, RSS5)

Residential mortgage servicers that receive a level five (5) rating meet minimum
industry standards and benchmarks. However, Fitch Ratings is concerned with
aspects of their operation, process, or financial condition. Residential
mortgage servicers at this level are not acceptable for servicing RMBS
transactions unless strong additional support or structural features are
incorporated.

A-8

STANDARD & POOR'S CORPORATION

A brief description of the applicable Standard & Poor's ratings symbols and
their meanings (as published by Standard & Poor's) follows:

LONG-TERM ISSUE CREDIT RATINGS

AAA An obligation rated 'AAA' has the highest rating assigned by
Standard & Poor's. 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 in 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 the higher rated categories.
However, the obligor's capacity to meet its financial commitment
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 to
meet its financial commitment on the obligation.

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.

C The 'C' rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been
taken, but payments on this obligation are being continued.

D An obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on
the date due even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period. The 'D' rating also will be used upon
the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.

A-9

PLUS (+)OR The ratings from 'AA' to 'CCC' may be modified by the addition of
MINUS (-) a plus or minus sign to show relative standing within the major
rating categories.

c The 'c' subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase
tendered bonds if the long-term credit rating of the issuer is
below an investment-grade level and/or the issuer's bonds are
deemed taxable.

p The letter 'p' indicates that the rating is provisional. A
provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that
payment of debt service requirements is largely or entirely
dependent upon the successful, timely completion of the project.
This rating, however, while addressing credit quality subsequent
to completion of the project, makes no comment on the likelihood
of or the risk of default upon failure of such completion. The
investor should exercise his own judgment with respect to such
likelihood and risk.

* Continuance of the ratings is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.

r The 'r' highlights derivative, hybrid, and certain other
obligations that Standard & Poor's believes may experience high
volatility or high variability in expected returns as a result of
noncredit risks. Examples of such obligations are securities with
principal or interest return indexed to equities, commodities, or
currencies; certain swaps and options; and interest-only and
principal-only mortgage securities. The absence of an 'r' symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.

NR Not rated.

Debt obligations of issuers outside the United States and its
territories are rated on the same basis as domestic corporate and
municipal issues. The ratings measure the creditworthiness of the
obligor but do not take into account currency exchange and
related uncertainties.

SHORT-TERM ISSUE CREDIT RATINGS

A-1 A short-term obligation rated 'A-1' is rated in the highest
category by Standard & Poor's. 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. The obligor currently
has the capacity to meet its financial commitment on the
obligation; however, it faces major ongoing uncertainties which
could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.

A-10

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 payment default. The 'D'
rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such payments
will be made during such grace period. The 'D' rating also will
be used upon the filing of a bankruptcy petition or the taking of
a similar action if payments on an obligation are jeopardized.

DUAL RATING DEFINITIONS

Standard & Poor's assigns "dual" ratings to all debt issues that have a put
option or demand feature as part of their structure. The first rating addresses
the likelihood of repayment of principal and interest as due, and the second
rating addressed only the demand feature. The long-term debt rating symbols are
used for bonds to denote the long-term maturity and the commercial paper rating
symbols for the put option (for example, AAA/A-1 +). With short-term demand
debt, Standard & Poor's note rating symbols are used with the commercial paper
rating symbols (for example, SP-1 +/A-1 +).

MUNICIPAL NOTES

A Standard & Poor's note ratings reflects the liquidity factors and market
access risks unique to notes. Notes due in 3 years or less will likely receive a
note rating. Notes maturing beyond 3 years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:

-- Amortization schedule the larger the final maturity relative to
other maturities, the more likely it will be treated as a note;
and

-- Source of payment the more dependent the issue is on the market
for its refinancing, the more likely it will be treated as a
note.

Note rating symbols are as follows:

SP-1 Very strong or strong capacity to pay principal and interest. An
issue determined to possess a very strong capacity to pay debt
service is given a plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the
term of the notes.

SP-3 Speculative capacity to pay principal and interest.

A-11

================================================================================

THE NEW AMERICA HIGH INCOME FUND, INC.

23,381,095 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
TRANSFERABLE RIGHTS TO SUBSCRIBE FOR SUCH SHARES

PROSPECTUS

[___________], 2003

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.

TABLE OF CONTENTS

PAGE

Prospectus Summary 3
Fee Table 7
Financial Information Summary 8
Net Asset Value and Market Price Information 13
The Offer 15
Use of Proceeds 24
The Fund 24
Investment Objective and Policies 26
Rating Agency Guidelines 34
Risk Factors and Special Considerations 45
Management of the Fund 48
Portfolio Maturity and Turnover 57
Taxation 58
Description of Capital Stock 61
Determination of Net Asset Value 72
Dividends and Distributions; Dividend Reinvestment Plan 73
Conversion to Open-End Status and Repurchase of Shares 74
Custodian, Auction Agent, Registrar, Transfer Agent and Paying Agent 75
Reports to Stockholders 76
Legal Matters 76
Independent Public Accountants 76
Experts 76
Additional Information 76
Financial Statements 77
Appendix A A-1

================================================================================

THE NEW AMERICA HIGH INCOME FUND, INC.

PART C - OTHER INFORMATION

Item 24: Financial Statements and Exhibits

1. Financial Statements

Financial Statements included in PART A (Prospectus) of this
Registration Statement:*

Financial Information Summary, including Financial Highlights and
Senior Securities, (for the Years Ended December 31, 2002, 2001,
2000, 1999, 1998, 1997, 1996, 1995, 1994, and 1993)
Schedule of Investments, December 31, 2002
Statement of Assets and Liabilities, December 31, 2002
Statement of Operations For the Period Ended December 31, 2002
Statements of Changes in Net Assets (For the Years Ended December
31, 2002 and December 31, 2001)
Financial Highlights Selected Per Share Data and Ratios For Each
Share of Common Stock Outstanding Throughout the Period (For the
Years Ended December 31, 2002, 2001, 2000, 1999, 1998, 1997)
Information Regarding Senior Securities (As of December 31, 2002,
2001, 2000, 1999, 1998, 1997)
Notes to Financial Statements, December 31, 2002
Independent Auditors' Report, January 31, 2003

* To be filed by amendment.

2. Exhibits

EXHIBIT
NUMBER DESCRIPTION
------- -----------

(a)(1) Articles of Amendment and Restatement of The New
America High Income Fund, Inc. dated as of February 19,
1988 together with First, Second and Third Certificates
of Changes of Definitions set forth therein, dated as
of March 8, 1988, May 3, 1988 and October 14, 1988,
respectively. (i)

(a)(2) Articles of Amendment of The New America High Income
Fund, Inc., dated as of June 15, 1989. (i)

(a)(3) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
December 28, 1993. (i)

(a)(4) Articles Supplementary of The New America High Income
Fund, Inc. Establishing and Defining the Rights and
Preferences of Two Series of Shares of Auction Term
Preferred Stock, as filed with the State Department of
Assessments and Taxation of the State of Maryland on
January 4, 1994. (i)

(a)(5) Certificate of Correction of The New America High
Income Fund, Inc., as filed with the State Department
of Assessments and Taxation of the State of Maryland on
February 1, 1996. (i)

(a)(6) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
October 31, 1996. (i)

(a)(7) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
October 31, 1996. (i)

(a)(8) Articles Supplementary of The New America High Income
Fund, Inc. Establishing and Defining the Rights and
Preferences of an Additional Series of Shares of
Auction Term Preferred Stock, as filed with the State
Department of Assessments and Taxation of the State of
Maryland on May 2, 1997. (ii)

(a)(9) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
May 30, 1997. (ii)

(a)(10) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
May 30, 1997. (ii)

(a)(11) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
June 18, 1997. (ii)

(a)(12) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
June 18, 1997. (ii)

(a)(13) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
September 11, 1997. (ii)

(a)(14) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
September 11, 1997. (ii)

(a)(15) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
October 23, 1997. (ii)

(a)(16) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
October 23, 1997. (ii)

(a)(17) Articles Supplementary of The New America High Income
Fund, Inc. Establishing and Defining the Rights and
Preferences of an Additional Series of Shares of
Auction Term Preferred Stock, as filed with the State
Department of Assessments and Taxation of the State of
Maryland on May 15, 1998.

(a)(18) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
August 7, 1998.

C-2

(a)(19) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
August 7, 1998.

(a)(20) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
August 7, 1998.

(a)(21) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
October 22, 1998.

(a)(22) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
October 22, 1998.

(a)(23) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
October 22, 1998.

(a)(24) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
July 10, 2000.

(a)(25) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
July 10, 2000.

(a)(26) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
July 10, 2000.

(a)(27) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
July 8, 2002.

(a)(28) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
July 8, 2002.

(a)(29) Articles of Amendment of The New America High Income
Fund, Inc., as filed with the State Department of
Assessments and Taxation of the State of Maryland on
July 8, 2002.

(b) By-Laws of The New America High Income Fund, Inc.,
Amended as of October 17, 2002.

(d)(1) Specimen Certificate for shares of Common Stock, par
value $0.01 per share, filed as an exhibit D to
Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-2, Registration No.
333-23253 (filed April 30, 1997).

(d)(2) Specimen Subscription Certificate. (iii)

(e)(1) Dividend Reinvestment Plan, as modified through June 1,
1992 filed as an exhibit E to the Registrant's
Registration Statement on Form N-2, Registration No.
333-17619 (filed December 11, 1996).

(e)(2) Amendment to Dividend Reinvestment Plan, effective
March 17, 1998, filed as an exhibit E2 to Pre-Effective
Amendment No. 1 to the Registrant's Registration
Statement on Form N-2, Registration No. 333-43315
(filed February 4, 1998).

C-3

(f) Not Applicable.

(g) Investment Advisory Agreement dated December 2, 2002
between the Registrant and T. Rowe Price Associates,
Inc.

(h) Not Applicable.

(i) Not Applicable.

(j) Custodian Contract dated as of February 11, 1988
between the Registrant and State Street Bank and Trust
Company. (i)

(k)(1) Registrar, Transfer Agency and Service Agreement dated
as of February 11, 1988 between the Registrant and
EquiServe Trust Company, N.A., as assignee of State
Street Bank and Trust Company. (i)

(k)(2) Agreement for Direct Deposit (Automated Clearing House)
Dividend Disbursement Services, dated February 7, 2000,
between the Registrant and EquiServe Trust Company,
N.A., as assignee of State Street Bank & Trust.

(k)(3) Fee and Service Schedule for Stock Transfer Services
dated May 1, 2003 between the Registrant and EquiServe,
Inc. and EquiServe Trust Company, N.A.

(k)(4) Auction Agent Agreement dated as of May 6, 1997 between
the Registrant and Deutsche Bank Trust Company
Americas, as successor to Bankers Trust Company, with
respect to the Auction Term Preferred Stock of the
Registrant, filed as an exhibit K2 to Pre-Effective
Amendment No. 1 to the Registrant's Registration
Statement on Form N-2, Registration No. 333-49043
(filed May 11, 1998).

(k)(5) Letter of Representations Agreement dated as of January
4, 1994 among the Registrant, Deutsche Bank Trust
Company Americas, as successor to Bankers Trust
Company, and The Depository Trust Company with respect
to the Auction Term Preferred Stock, Series A and
Series B, of the Registrant, filed as an exhibit K3 to
the Registrant's Registration Statement on Form N-2,
Registration No. 333-17619 (filed December 11, 1996).

(k)(6) Letter of Representations Agreement dated as of May 6,
1997 among the Registrant, Deutsche Bank Trust Company
Americas, as successor to Bankers Trust Company, and
The Depository Trust Company with respect to the
Auction Term Preferred Stock, Series C, of the
Registrant, filed as an exhibit K3 to Pre-Effective
Amendment No. 1 to the Registrant's Registration
Statement on Form N-2, Registration No. 333-49043
(filed May 11, 1998).

(k)(7) Form of Letter of Representations Agreement with
respect to the Auction Term Preferred Stock, Series D,
of the Registrant, filed as an exhibit K5 to
Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-2, Registration No.
333-49043 (filed May 11, 1998).

(k)(8) Broker-Dealer Agreement dated May 6, 1997 between
Deutsche Bank Trust Company Americas, as successor to
Bankers Trust Company, and Lehman Brothers Inc. with
respect to the Auction Term Preferred Stock of the
Registrant, filed as an exhibit K4 to Pre-Effective
Amendment No. 1 to the Registrant's Registration
Statement on Form N-2, Registration No. 333-49043
(filed May 11, 1998).

(k)(9) Letter Agreement dated May 6, 1997 between the
Registrant and Lehman Brothers Inc. with respect to the
Auction Term Preferred Stock of the Registrant, filed
as an exhibit K7

C-4

to Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-2, Registration No.
333-49043 (filed May 11, 1998).

(k)(10) Form of Broker-Dealer Agreement between Deutsche Bank
Trust Company Americas, as successor to Bankers Trust
Company, and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated with respect to the
Auction Term Preferred Stock of the Registrant, filed
as an exhibit K6 to Pre-Effective Amendment No. 1 to
the Registrant's Registration Statement on Form N-2,
Registration No. 333-49043 (filed May 11, 1998).

(k)(11) Letter Agreement dated September 28, 2001 between the
Registrant and Fleet National Bank with respect to
interest rate swap.

(k)(12) Partial Termination Agreement dated November 8, 2002
between the Registrant and Fleet National Bank with
respect to interest rate swap.

(k)(13) Agreement dated as of October 31, 2002 between the
Registrant and Ellen E. Terry.

(k)(14) Agreement dated as of October 31, 2002 between the
Registrant and Paul E. Saidnawey.

(k)(15) Subscription Agent Agreement between the Registrant and
EquiServe Trust Company, N.A. (iii)

(k)(16) Information Agency Agreement dated May 19, 2003 between
the Registrant and The Altman Group, Inc.

(k)(17) Engagement Letter dated May 14, 2003 between the
Registrant and A.G. Edwards & Sons, Inc.

(k)(18) Affirmation and Undertaking dated August 13, 1990
executed by certain directors and executive officers of
the Registrant. (iii)

(l) Opinion as to the legality of securities being
registered and consent to its use. (iii)

(m) Not Applicable.

(n) Consent of KPMG LLP. (iii)

(o) Not Applicable.

(p) Not Applicable.

(q) Not Applicable.

(r)(1) Code of Ethics of the Registrant adopted under Rule
17j-1.

(r)(2) Code of Ethics of T. Rowe Price Associates, Inc.
adopted under Rule 17j-1.

C-5

(s) Powers of Attorney for Robert F. Birch, Joseph L.
Bower, Richard E. Floor, Bernard J. Korman, Ernest E.
Monrad and Ellen E. Terry.
(filed as part of the signature page to this
Registration Statement)

----------
FOOTNOTE
REFERENCE DESCRIPTION

(i) Filed as an exhibit to the Registrant's Registration Statement on
Form N-2, Registration No. 333-17619, (filed December 11, 1996)
under the same exhibit number and incorporated herein by
reference.

(ii) Filed as an exhibit to the Registrant's Registration Statement on
Form N-2, Registration No. 333-43315 (filed December 24, 1997)
under the same exhibit number and incorporated herein by
reference.

(iii) To be filed by amendment.

Item 25: Marketing Arrangements

Not Applicable.

Item 26: Other Expenses of Issuance and Distribution

Securities and Exchange Commission Fees $ [______]
New York Stock Exchange Fees [______]
Printing and Engraving Expenses [______]
Legal Fees and Expenses [______]
Accounting Fees and Expenses [______]
Financial Advisor Fee and Expenses [______]
Subscription Agent Fee and Mailing Expenses [______]
Information Agent Fee and Expenses [______]
Miscellaneous Expenses [______]
Third Party Fee Waiver [______]

Total $ [______]

Item 27: Persons Controlled By or Under Common Control

None.

Item 28: Number of Holders of Securities

At April 30, 2003, the numbers of record holders of shares of the
Registrant were as follows:

NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------

Common Shares, $0.01 par value per share [_____]
Series A Auction Term Preferred Stock, $1.00 par value per share 1
Series B Auction Term Preferred Stock, $1.00 par value per share 1
Series C Auction Term Preferred Stock, $1.00 par value per share 1
Series D Auction Term Preferred Stock, $1.00 par value per share 1

Item 29: Indemnification

C-6

Article V, paragraph (D) of the Registrants' Articles provides that the
Registrant shall indemnify its directors to the full extent permitted by the
Registrants' By-Laws and Maryland law.

Article V, Section 1 of the Registrant's By-Laws provides that the
Registrant shall indemnify its directors to the fullest extent that
indemnification of directors and officers is permitted by the Maryland General
Corporation Law and shall indemnify its officers to the same extent as its
directors and to such further extent as is consistent with law. Section 2-418 of
the Maryland General Corporation Law empowers a corporation, subject to certain
limitations, to indemnify its directors and officers against judgments,
penalties, fines, settlements, and reasonable expenses (including attorneys'
fees) actually incurred by the director or officers in connection with any suit
or proceeding to which they are a party unless: (1) it is established that the
director's or officer's act or omission was material to the matter giving rise
to the proceeding and either was committed in bad faith or was the result of
active and deliberate dishonesty, (ii) the director or officer actually received
an improper personal benefit in money, property or services or, (iii) in a
criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful.

The Registrant's By-Laws further provide that the Registrant shall
indemnify its directors and officers who while serving as directors or officers
also serve at the request of the Registrant as a director, officer, partner,
trustee, employee, agent or fiduciary of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan to the fullest extent
consistent with law. The indemnification and other rights provided by the
Registrant's By-Laws continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.

Under Maryland law, director or officer who is a party to a proceeding may
be paid or reimbursed by the Registrant in advance of the final disposition of
the proceeding upon receipt by the corporation of: (i) a written affirmation by
the director or officer of the director's or officer's good faith belief that
the standard of conduct necessary for indemnification by the Registrant has been
met and (ii) a written undertaking by or on behalf of the director to pay the
amount if it shall ultimately be determined that the standard of conduct has not
been met. Employees and agents who are not officers or directors of the
Registrant may be indemnified, and reasonable expenses may be advanced to such
employees or agents, as may be provided by action of the Board of Directors or
by contract, subject to any limitations imposed by the 1940 Act.

In connection with certain actions filed against the directors and
executive officers of the Registrant, the Registrant has, subject to terms and
conditions required by Maryland law, authorized the advancement of reasonable
attorneys' fees and related costs arising from the defense of such actions.
Under the terms of an Affirmation and Undertaking entered into by each of the
directors and executive officers, each such person has agreed to repay to the
Registrant all amounts advanced for expenses (including attorneys' fees) on his
or her behalf if it is ultimately determined that the director or executive
officer is not entitled to indemnification.

In addition to the foregoing, Article V(E) to Registrant's charter provides
as follows:

"(E) To the fullest extent that limitations on the liability of directors
and officers are permitted by the Maryland General Corporation Law, as from time
to time amended, no director or officer of the Corporation shall have any
liability to the Corporation or its stockholders for damages. This limitation on
liability applies to events occurring at the time a person serves as a director
or officer of the Corporation whether or not such person is a director or
officer at the time of any proceeding in which liability is asserted. No
provision of this Article V(E) shall be effective to protect or purport to
protect any director or officer of the Corporation against any liability to the
Corporation or its security holders as 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 future amendment to this Article V(E) shall affect any right of any person
under this Article V(E) based on any event, omission or proceeding prior to such
amendment."

Section 2-405.2 of the Maryland General Corporation Law together with
Section 5-418 of the Courts and Judicial Proceedings Article of the Maryland
Code provides that a charter provision limiting the liability of a director or
officer may not include a provision which limits or restricts the liability of a
director or officer to the corporation's stockholders to the extent it is proved
that the person actually received an improper personal benefit to the extent of
the value of such benefit or an adverse final adjudication is entered in a
proceeding based on a finding

C-7

that the person's act or failure to act was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated.

As permitted by Section 2-418(k) of the Maryland General Corporation Law,
Article V, Section 3 of the Registrant's By-Laws provides that the Registrant
shall have the power to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Registrant, or who,
while a director, officer, employee or agent of the Registrant, is or was
serving at the request of the Registrant as a director, officer, partner,
trustee, employee, or agent or fiduciary of another corporation, partnership,
joint venture, trust, enterprise or employee benefit plan, against any liability
asserted against and incurred by such person in any such capacity or arising out
of such person's positions.

The Investment Advisory Agreement between the Registrant and T. Rowe Price
Associates, Inc. ("T. Rowe Price") provides that the Registrant will indemnify
T. Rowe Price for all liabilities and expenses, including defense costs, in
connection with any litigation pertaining to the period prior to T. Rowe Price's
relationship with the Registrant under such agreement, other than liabilities
resulting from willful misfeasance, bad faith or gross negligence on the part of
T. Rowe Price.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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
(the "Commission") such indemnification is against public policy as expressed in
the 1940 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 1940 Act and
will be governed by the final adjudication of such issues.

Item 30: Business and Other Connections of Investment Adviser

T. Rowe Price, the Registrant's investment adviser, organized under
Maryland law, is a registered investment adviser primarily engaged in the
investment advisory business. T. Rowe Price is a wholly owned subsidiary of
T. Rowe Price Group, Inc., a publicly-traded financial services holding company.
Information as to the executive officers and directors of T. Rowe Price is
included in its Form ADV, as amended, filed with the Commission (File No.
801-00856), and is incorporated herein by reference thereto together with all
amendments thereto subsequently filed, which amendments shall be deemed to be
incorporated by reference in this registration statement and be a part hereof
from the date of filing of such amendments to the extent permitted by the
applicable rules and regulations of the Commission.

Item 31: Location of Accounts and Records

All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
(17 CFR 270.31a-1 to 31a-3) promulgated thereunder are maintained at the offices
of the custodian of the Registrant at [One Heritage Drive, North Quincy,
Massachusetts 02171,] except that the corporate records of the Registrant
(including its Articles of Incorporation and By-Laws) are maintained at the
offices of the Registrant at 33 Broad Street, Boston, Massachusetts 02109.

Item 32: Management Services

Not applicable.

Item 33: Undertakings

1. The Registrant undertakes to suspend the offering of its shares
until it amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the NAV declines more than ten percent from its NAV

C-8

as of the effective date of the Registration Statement, or (2) the NAV increases
to an amount greater than its net proceeds as stated in the prospectus.

2. Not applicable.

3. Not applicable.

4. Not applicable.

5. The Registrant undertakes that:

a. For purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant under Rule 497(h) under the
Securities Act of 1933 shall be deemed to be part of the Registration Statement
as of the time it was declared effective; and

b. For the purpose of determining any liability under the
Securities Act of 1933, 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 the securities at that time
shall be deemed to be the initial bona fide offering thereof.

6. Not applicable.

C-9

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Registration Statement on Form N-2 to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston and The Commonwealth
of Massachusetts, on the 23rd day of May, 2003.

THE NEW AMERICA HIGH INCOME FUND, INC.

By: /s/ Robert F. Birch
----------------------------------
Robert F. Birch
President

Know all men by these presents that each person whose signature appears
below hereby severally constitutes and appoints Robert F. Birch and Ellen E.
Terry, and each of them singly, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution, for the undersigned and in the
undersigned's name, place and stead, in any and all capacities, to sign and
affix the undersigned's name to any and all amendments to this registration
statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing necessary or incidental
to the performance and execution of the powers herein granted, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them or
their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form N-2 has been signed below by the following
persons in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Robert F. Birch President and Director May 23, 2003
------------------------------------ (Principal Executive Officer)
Robert F. Birch

/s/ Ellen E. Terry Vice President and Treasurer May 23, 2003
------------------------------------ (Principal Financial and Accounting
Ellen E. Terry Officer)

/s/ Joseph L. Bower Director May 23, 2003
------------------------------------
Joseph L. Bower

/s/ Richard E. Floor Director May 23, 2003
------------------------------------
Richard E. Floor

/s/ Bernard J. Korman Director May 23, 2003
------------------------------------
Bernard J. Korman

/s/ Ernest E. Monrad Director May 23, 2003
------------------------------------
Ernest E. Monrad

C-10

1933 Act File No.333-_______
1940 Act File No. 811-5399

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

------------

FORM N-2

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. __ / /
Post-Effective Amendment No. __ / /

and

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 27 /X/

------------

THE NEW AMERICA HIGH INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)

------------

EXHIBITS

================================================================================

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION

A17 Articles Supplementary of The New America High Income Fund, Inc.
Establishing and Defining the Rights and Preferences of an
Additional Series of Shares of Auction Term Preferred Stock, as
filed with the State Department of Assessments and Taxation of
the State of Maryland on May 15, 1998.

A18 Articles of Amendment of The New America High Income Fund, Inc.,
as filed with the State Department of Assessments and Taxation of
the State of Maryland on August 7, 1998.

A19 Articles of Amendment of The New America High Income Fund, Inc.,
as filed with the State Department of Assessments and Taxation of
the State of Maryland on August 7, 1998.

A20 Articles of Amendment of The New America High Income Fund, Inc.,
as filed with the State Department of Assessments and Taxation of
the State of Maryland on August 7, 1998.

A21 Articles of Amendment of The New America High Income Fund, Inc.,
as filed with the State Department of Assessments and Taxation of
the State of Maryland on October 22, 1998.

A22 Articles of Amendment of The New America High Income Fund, Inc.,
as filed with the State Department of Assessments and Taxation of
the State of Maryland on October 22, 1998.

A23 Articles of Amendment of The New America High Income Fund, Inc.,
as filed with the State Department of Assessments and Taxation of
the State of Maryland on October 22, 1998.

A24 Articles of Amendment of The New America High Income Fund, Inc.,
as filed with the State Department of Assessments and Taxation of
the State of Maryland on July 10, 2000.

A25 Articles of Amendment of The New America High Income Fund, Inc.,
as filed with the State Department of Assessments and Taxation of
the State of Maryland on July 10, 2000.

A26 Articles of Amendment of The New America High Income Fund, Inc.,
as filed with the State Department of Assessments and Taxation of
the State of Maryland on July 10, 2000.

A27 Articles of Amendment of The New America High Income Fund, Inc.,
as filed with the State Department of Assessments and Taxation of
the State of Maryland on July 8, 2002.

A28 Articles of Amendment of The New America High Income Fund, Inc.,
as filed with the State Department of Assessments and Taxation of
the State of Maryland on July 8, 2002.

A29 Articles of Amendment of The New America High Income Fund, Inc.,
as filed with the State Department of Assessments and Taxation of
the State of Maryland on July 8, 2002.

B By-Laws of The New America High Income Fund, Inc., Amended as of
October 17, 2002.

G Investment Advisory Agreement dated December 2, 2002 between the
Registrant and T. Rowe Price Associates, Inc.

K2 Agreement for Direct Deposit (Automated Clearing House) Dividend
Disbursement Services, dated February 7, 2000, between the
Registrant and EquiServe Trust Company, N.A., as assignee of
State Street Bank & Trust.

K3 Fee and Service Schedule for Stock Transfer Services dated May 1,
2003 between the Registrant and EquiServe, Inc. and EquiServe
Trust Company, N.A.

K11 Letter Agreement dated September 28, 2001 between the Registrant
and Fleet National Bank with respect to interest rate swap.

K12 Partial Termination Agreement dated November 8, 2002 between the
Registrant and Fleet National Bank with respect to interest rate
swap.

K13 Agreement dated as of October 31, 2002 between the Registrant and
Ellen E. Terry.

K14 Agreement dated as of October 31, 2002 between the Registrant and
Paul E. Saidnawey.

K16 Information Agency Agreement dated May 19, 2003 between the
Registrant and The Altman Group, Inc.

K17 Engagement Letter dated May 14, 2003 between the Registrant and
A.G. Edwards & Sons, Inc.

R1 Code of Ethics of the Registrant adopted under Rule 17j-1.

R2 Code of Ethics of T. Rowe Price Associates, Inc. adopted under
Rule 17j-1.