UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
RMK STRATEGIC INCOME FUND, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
RMK ADVANTAGE INCOME FUND, INC.
RMK HIGH INCOME FUND, INC.
RMK MULTI-SECTOR HIGH INCOME FUND, INC.
RMK STRATEGIC INCOME FUND, INC.
50 NORTH FRONT STREET
MEMPHIS, TENNESSEE 38103
May 20, 2008
Dear Shareholders:
The enclosed Notice and Proxy Statement relate to separate joint Special and
Annual Meetings of Shareholders (the "Meetings") of RMK Advantage Income Fund,
Inc., RMK High Income Fund, Inc., RMK Multi-Sector High Income Fund, Inc. and
RMK Strategic Income Fund, Inc. (each a "Fund" and collectively, the "Funds") to
be held on July 11, 2008, at the offices of Regions Financial Corp., 7130
Goodlett Farms Parkway, Cordova, Tennessee 38016, at 11:00 a.m. Central Time.
At the Special Meeting, the Funds' Boards of Directors are recommending that
shareholders approve new investment advisory agreements (each, a "New Advisory
Agreement" and collectively, the "New Advisory Agreements") between Hyperion
Brookfield Asset Management, Inc. ("HBAM") and each Fund. In addition, if the
New Advisory Agreements are approved by shareholders, the Boards are
recommending that shareholders elect a new Board of Directors of each Fund at
the Annual Meeting. The holding of a Fund's Annual Meeting as currently
scheduled is contingent upon the approval of the New Advisory Agreement by the
shareholders of the Fund. The New Advisory Agreements will not take effect
unless the shareholders of each Fund elect the new directors and the transaction
described in the accompanying Proxy Statement is consummated.
Morgan Asset Management, Inc. ("MAM"), the current investment adviser to the
Funds, has entered into an agreement with HBAM under which HBAM, an investment
adviser registered with the U.S. Securities and Exchange Commission, is being
proposed by MAM to become the new investment adviser to the Funds. The agreement
contemplates that HBAM would become the investment adviser to the Funds and MAM
would no longer serve as the Funds' investment adviser. The agreement also
contemplates that in connection with the approval of HBAM as the Funds'
investment adviser shareholders would elect new Boards of Directors of the
Funds, which would consist of individuals proposed by HBAM, and the current
members of the Boards would no longer serve as directors of the Funds. Detailed
information with respect to each of these proposals is included in the
accompanying Proxy Statement for the Meetings.
Each Fund's Board of Directors has unanimously approved the New Advisory
Agreement and has nominated five new individuals for election as directors of
the Fund. The appointment of HBAM as investment adviser to each Fund must be
approved by the shareholders of that Fund, and the new Board of Directors of a
Fund must be elected by the shareholders of that Fund.
YOU WILL BE ASKED (1) TO APPROVE A NEW ADVISORY AGREEMENT FOR YOUR FUND(S)
AT THE JOINT SPECIAL MEETING, AND (2) IF THE NEW ADVISORY AGREEMENTS ARE
APPROVED, TO ELECT FIVE NEW DIRECTORS OF YOUR FUND(S) AT THE JOINT ANNUAL
MEETING. THE BOARDS UNANIMOUSLY RECOMMEND THAT YOU VOTE "FOR" THE APPROVAL OF A
NEW ADVISORY AGREEMENT FOR YOUR FUND(S). THE BOARDS ALSO UNANIMOUSLY RECOMMEND
THAT YOU VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES. ALTHOUGH THE BOARDS
HAVE DETERMINED THAT THE PROPOSALS ARE IN YOUR BEST INTEREST, THE FINAL DECISION
IS YOURS.
YOUR VOTE IS IMPORTANT. The accompanying Proxy Statement includes a
detailed description of the proposals and the reasons for the Boards'
recommendations. The formal Notice of Joint Special and Annual Meetings and
proxy cards also are enclosed. Please read the enclosed materials carefully and
cast your vote. Voting your shares early will help to avoid costly follow-up
mail and telephone solicitation. After reviewing the attached proxy materials,
please complete, sign and date your proxy cards and mail them in the enclosed
postage-paid envelope. Please refer to the enclosed proxy cards for alternative
forms of voting or you may vote in person.
Thank you for your continued support.
Sincerely,
/s/ Brian B. Sullivan
Brian B. Sullivan
President
RMK ADVANTAGE INCOME FUND, INC.
RMK HIGH INCOME FUND, INC.
RMK MULTI-SECTOR HIGH INCOME FUND, INC.
RMK STRATEGIC INCOME FUND, INC.
50 NORTH FRONT STREET
MEMPHIS, TENNESSEE 38103
NOTICE OF JOINT SPECIAL AND ANNUAL MEETINGS OF SHAREHOLDERS
JULY 11, 2008
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Dear Shareholders:
NOTICE IS HEREBY GIVEN that separate joint Special and Annual Meetings of
Shareholders (the "Meetings") of RMK Advantage Income Fund, Inc., RMK High
Income Fund, Inc., RMK Multi-Sector High Income Fund, Inc. and RMK Strategic
Income Fund, Inc. (each, a "Fund" and collectively, the "Funds") will be held on
July 11, 2008, at 11:00 a.m. Central Time, at the offices of Regions Financial
Corp., 7130 Goodlett Farms Parkway, Cordova, Tennessee 38016, for the following
purposes:
SPECIAL MEETING
(1) To approve a new investment advisory agreement between Hyperion
Brookfield Asset Management, Inc. and each Fund; and
(2) To consider and act upon any other business as may properly come before
the Special Meeting or any adjournment thereof.
ANNUAL MEETING
(1) To elect a Board of five Directors consisting of two Class I Directors,
one Class II Director and two Class III Directors of each Fund; and
(2) To consider and act upon any other business as may properly come before
the Annual Meeting or any adjournment thereof.
EACH FUND'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" EACH PROPOSAL.
Each Fund's Board of Directors has fixed the close of business on May 5,
2008, as the record date for the determination of shareholders entitled to
notice of, and to vote at, the Meetings and any adjournments thereof.
By Order of the Boards of Directors,
/s/ Charles D. Maxwell
Charles D. Maxwell
Secretary
May 20, 2008
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YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN.
PLEASE RETURN YOUR PROXY CARDS PROMPTLY.
SHAREHOLDERS ARE INVITED TO ATTEND THE MEETINGS IN PERSON. ANY SHAREHOLDER
WHO DOES NOT EXPECT TO ATTEND THE MEETINGS IS URGED TO INDICATE VOTING
INSTRUCTIONS ON THE ENCLOSED PROXY CARDS, DATE AND SIGN THEM, AND RETURN THEM IN
THE ENVELOPE PROVIDED, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU OWN SHARES OF MORE THAN ONE FUND, THERE WILL BE TWO PROXY CARDS ENCLOSED FOR
EACH FUND OWNED. PLEASE FILL OUT AND RETURN EACH PROXY CARD. PLEASE REFER TO THE
ENCLOSED PROXY CARDS FOR INSTRUCTIONS ON ALTERNATIVE FORMS OF VOTING. IF YOU
SIGN, DATE AND RETURN THE PROXY CARDS BUT GIVE NO VOTING INSTRUCTIONS, THE
PROXIES WILL VOTE IN FAVOR OF THE APPROVAL OF THE NEW ADVISORY AGREEMENT(S) AND
THE ELECTION OF EACH OF THE NOMINEES.
TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK YOUR
COOPERATION IN MAILING YOUR PROXY CARDS PROMPTLY, NO MATTER HOW LARGE OR SMALL
YOUR HOLDINGS MAY BE.
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RMK ADVANTAGE INCOME FUND, INC.
RMK HIGH INCOME FUND, INC.
RMK MULTI-SECTOR HIGH INCOME FUND, INC.
RMK STRATEGIC INCOME FUND, INC.
50 NORTH FRONT STREET
MEMPHIS, TENNESSEE 38103
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PROXY STATEMENT
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JOINT SPECIAL AND ANNUAL MEETINGS OF SHAREHOLDERS
JULY 11, 2008
This Proxy Statement is furnished to shareholders in connection with the
solicitation of proxies on behalf of the Boards of Directors (each, a "Board"
and collectively, the "Boards") of RMK Advantage Income Fund, Inc., RMK High
Income Fund, Inc., RMK Multi-Sector High Income Fund, Inc. and RMK Strategic
Income Fund, Inc. (each, a "Fund" and collectively, the "Funds") to be voted at
separate joint Special and Annual Meetings of Shareholders of the Funds to be
held on July 11, 2008, at 11:00 a.m. Central Time at the offices of Regions
Financial Corp. ("Regions"), 7130 Goodlett Farms Parkway, Cordova, Tennessee
38016, or any adjournments thereof (the "Meetings"). The approximate mailing
date of this Proxy Statement and the accompanying proxy cards is May 27, 2008.
As discussed more fully below, shareholders of the Funds are being asked to
vote:
SPECIAL MEETING
(1) To approve a new investment advisory agreement (each, a "New Advisory
Agreement" and collectively, the "New Advisory Agreements") between
Hyperion Brookfield Asset Management, Inc. ("HBAM") and each Fund; and
(2) To consider and act upon any other business as may properly come before
the Special Meeting or any adjournment thereof.
ANNUAL MEETING
(1) To elect a Board of five Directors consisting of two Class I Directors,
one Class II Director and two Class III Directors of each Fund; and
(2) To consider and act upon any other business as may properly come before
the Annual Meeting or any adjournment thereof.
The Boards know of no business other than the approval of the New Advisory
Agreements and the election of the new Boards of Directors that will be
presented for consideration at the Meetings. If any other matter is properly
presented, it is the intention of the persons named in the enclosed proxies to
vote in accordance with their best judgment. The New Advisory Agreements will be
considered and voted on at the joint Special Meeting and, if the New Advisory
Agreements are approved by shareholders, the proposal to elect new Boards of
five Directors will be considered and voted on at the joint Annual Meeting. The
New Advisory Agreements will not take effect unless the shareholders also elect
the new directors and the Transaction (defined below) is consummated. The
holding of the joint Annual Meeting as currently scheduled is contingent upon
the approval of the New Advisory Agreements at the joint Special Meeting. In the
event that the New Advisory Agreement between any Fund and HBAM is not approved,
the Funds' joint Annual Meeting will be postponed.
The close of business on May 5, 2008 has been fixed as the record date (the
"Record Date") for determining shareholders entitled to notice of, and to vote
at, the Meetings. Information as to the number of outstanding shares of common
stock of each Fund as of the Record Date is set forth below:
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Total Number of Shares
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RMK Advantage Income Fund, Inc. 32,481,735
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RMK High Income Fund, Inc. 23,972,004
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RMK Multi-Sector High Income Fund, Inc. 36,662,828
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RMK Strategic Income Fund, Inc. 28,992,070
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To the knowledge of the Funds, as of the Record Date, the Funds do not know of
any person who owned beneficially 5% or more of any class of shares of a Fund.
As of the Record Date, current directors and officers of each Fund as a group
owned an aggregate of less than one percent of each Fund's outstanding shares.
Additional information regarding voting your shares of the Funds and attending
the Meetings is included at the end of this Proxy Statement in the section
entitled "Voting Information."
Each Fund is a Maryland corporation that is registered with the U.S.
Securities and Exchange Commission (the "SEC") under the Investment Company Act
of 1940, as amended (the "1940 Act"), as a diversified, closed-end management
investment company with its own investment objective. Each Fund is authorized to
issue 1,000,000,000 shares of capital stock with a par value of $0.0001 per
share (individually and collectively referred to as "shares," and the holders of
the shares are "shareholders").
Morgan Asset Management, Inc. ("MAM"), 1901 6th Avenue North, 4th Floor,
Birmingham, Alabama 35203, a registered investment adviser under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), is a wholly owned
subsidiary of MK Holding, Inc. and serves as the each Fund's investment adviser
under an investment advisory agreement (collectively, the "Current Advisory
Agreements"). MK Holding, Inc. is a wholly owned subsidiary of Regions. Morgan
Keegan & Company, Inc. ("Morgan Keegan") is also a wholly owned subsidiary of
Regions.
The date of this Proxy Statement is May 20, 2008.
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TABLE OF CONTENTS
OVERVIEW ......................................................................4
The Transaction................................................................4
Post-Transaction Structure and Operations of the Funds.........................5
HBAM and its Affiliates........................................................6
Anticipated Benefits of the Transaction........................................6
SPECIAL MEETING-PROPOSAL 1: APPROVAL OF A NEW ADVISORY AGREEMENT BETWEEN EACH
FUND AND HBAM .................................................................7
Reasons for Board Approval and Recommendation..................................7
Terms of the New Advisory Agreement...........................................11
Differences Between the Current Advisory Agreements and New Advisory
Agreements....................................................................14
Other Agreements Relating to the Funds........................................14
Section 15(f) of the 1940 Act.................................................15
Required Vote.................................................................15
ANNUAL MEETING-PROPOSAL 2: ELECTION OF BOARDS OF DIRECTORS ..................16
Board Consideration of the Nominees...........................................16
Information Concerning Nominees...............................................17
Ownership of Fund Shares......................................................19
Board and Committee Meetings..................................................19
Information About the Funds' Current Officers.................................21
Compensation of Directors.....................................................22
Procedures for Communications to the Boards ..................................22
Required Vote.................................................................22
ADDITIONAL INFORMATION........................................................23
Investment Adviser and Administrator..........................................23
Information about the Independent Registered Public Accounting Firm ..........23
Legal Proceedings.............................................................24
VOTING INFORMATION ...........................................................25
Required Vote.................................................................25
SOLICITATION OF PROXIES ......................................................26
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ......................26
DIRECTOR ATTENDANCE AT MEETINGS AND SHAREHOLDER COMMUNICATIONS ...............26
SHAREHOLDER PROPOSALS ........................................................26
SHAREHOLDER REPORTS ..........................................................27
OTHER BUSINESS ...............................................................27
APPENDIX A ..................................................................A-1
3
OVERVIEW
On April 21, 2008, the Boards considered and approved items to effectuate
a proposal by MAM and HBAM, whereby HBAM would become the new investment adviser
to the Funds. To implement the new investment advisory arrangements for the
Funds, the Boards approved the New Advisory Agreements between HBAM and the
Funds. The Boards are submitting the New Advisory Agreements for approval by
the shareholders of the Funds. If the New Advisory Agreements are approved by
shareholders, the Boards also are submitting a slate of five nominees for
election to serve as new Boards of Directors of the Funds following consummation
of the Transaction (defined below).
THE TRANSACTION
MAM and its affiliates have entered into an Adoption Agreement with HBAM
dated as of April 18, 2008 (the "Adoption Agreement"), under which HBAM is being
proposed by MAM to become the new investment adviser to the Funds and three
open-end funds (the "Open-End Funds") currently advised by MAM (the
"Transaction"). The Adoption Agreement contemplates that, following approval of
the New Advisory Agreements by shareholders of the Funds, approval of a separate
new advisory agreement by shareholders of the Open-End Funds, the election of
new Boards of five Directors of the Funds (the "New Boards") and the election of
a new board of directors of the Open-End Funds, HBAM would become the investment
adviser to the Funds and MAM would no longer serve as the Funds' investment
adviser. The Adoption Agreement also contemplates that MAM would support the
election of the New Boards, which would consist of individuals proposed by HBAM,
and the current members of the Boards would no longer serve as directors
following consummation of the Transaction. The Adoption Agreement contemplates
that the same slate of nominees would be elected and qualified to serve as a new
board of directors of the Open-End Funds.
After careful consideration of the history of each Fund's relationship
with MAM and HBAM, each Board, including all of the directors who are not
"interested persons" (as defined in the 1940 Act) of the Funds (the "Independent
Directors"), who were present at a meeting held in-person on April 21, 2008,
unanimously determined that it would be in the best interests of each Fund and
its shareholders to approve the proposals contemplated by the Adoption
Agreement. At the April 21, 2008 meeting, the Boards, including all of the
Independent Directors, unanimously approved the New Advisory Agreements with
HBAM and determined to submit them to shareholders for approval. The form of the
New Advisory Agreement is attached hereto as Appendix A.
The Adoption Agreement contemplates that, contingent upon Board and
shareholder approval of the New Advisory Agreements, the New Boards would be
elected and qualified, and that the current directors of the Funds would no
longer serve following consummation of the Transaction. As described more fully
below, at its April 21, 2008 meeting, each Board, based on the recommendation of
its Independent Directors Committee, nominated a slate of five individuals
(each, a "Nominee" and collectively, the "Nominees") for election as directors
of the Funds. At that meeting, the Boards also approved, based on the
recommendation of the Independent Directors Committees, a decrease in the number
of directors of the Funds from six to five, with such decrease to take effect
upon consummation of the Transaction. The Board of each Fund will continue to
be divided into three classes, designated Class I, Class II and Class III, with
the terms of office of Class I, Class II and Class III Directors expiring at the
annual meeting of shareholders held in 2009, 2010 and 2011, respectively, and at
each third annual meeting of shareholders thereafter.
The consummation of the Transaction is subject to certain terms and
conditions, including, among others: (1) each Fund obtaining approval to enter
into the New Advisory Agreement, as set forth in Proposal 1 of this Proxy
Statement, from the shareholders of that Fund; and (2) the election of the New
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Board, as set forth in Proposal 2 of this Proxy Statement, by the shareholders
of each Fund. In addition, the consummation of the Transaction is contingent
upon approval by the shareholders of the Open-End Funds of a new advisory
agreement with HBAM and the election of the Nominees as directors of the Open-
End Funds. The Adoption Agreement also includes representations and warranties
and indemnification provisions. Although there is no assurance that the
Transaction will be consummated, if each of the terms and conditions is
satisfied or waived, the parties anticipate that the closing of the Transaction
will take place on or about July 14, 2008.
As stated above, the appointment of HBAM as the Funds' investment adviser
and the election of the New Boards have been approved by each Fund's current
Board and must be approved by the shareholders of the Funds. The Boards are
submitting the New Advisory Agreements for approval by the shareholders of the
Funds at the Special Meeting. If shareholders of each Fund approve the New
Advisory Agreement, the Boards also are submitting the Nominees for election at
the Annual Meeting to serve as directors of the Funds upon consummation of the
Transaction.
Section 15 of the 1940 Act requires that agreements under which persons
serve as investment advisers to a registered investment company must be approved
by a specified majority of the fund's shareholders. Please see the section
entitled "Voting Information" below. Accordingly, shareholders of each Fund are
being asked to approve the New Advisory Agreement with respect to their Fund to
allow HBAM to serve as the Fund's investment adviser. If the shareholders of
each Fund do not approve the New Advisory Agreement at the Special Meeting, MAM
will continue as investment adviser and the Funds' Annual Meeting will be
postponed.
POST-TRANSACTION STRUCTURE AND OPERATIONS OF THE FUNDS
Following shareholder approval of the proposals described in this Proxy
Statement and the consummation of the Transaction, HBAM will become the Funds'
investment adviser and will have primary responsibility for the day-to-day
management of the Funds. It is expected that the Funds' investment objectives,
policies and restrictions (as set forth in the registration statement) will
remain the same after the Transaction. Furthermore, it is expected that because
of the Expense Limitation Agreements (defined below) the maximum annual
operating expense ratio of each Fund will be no higher than the current maximum
annual operating expense ratio of that Fund (not including any voluntary waivers
or expense limitations by MAM) for a period of at least two years after the
Transaction.
If the joint Annual Meeting is convened as scheduled and the Nominees are
elected by shareholders at the joint Annual Meeting, the Nominees will be
qualified and serve as directors of the Funds upon consummation of the
Transaction. Although their terms of office do not expire at the Annual
Meeting, the current Class I and Class III Directors will resign as directors of
the Funds effective upon consummation of the Transaction. Accordingly, upon
consummation of the Transaction, all the current members of the Boards, J.
Kenneth Alderman, Albert C. Johnson, James Stillman R. McFadden, W. Randall
Pittman, Mary S. Stone and Archie W. Willis, III, will no longer serve as
directors of the Funds. In addition, the New Boards are expected to appoint new
officers of the Funds.
Under the Adoption Agreement, Morgan Keegan has agreed to continue
providing certain administrative and fund accounting services to the Funds until
HBAM effects a transition to one or more other service providers.
The Funds are permitted to borrow up to one-third of the value of their
total assets, including such borrowings, for investment purposes. Such
borrowing is referred to as leveraging and the Funds have utilized
collateralized bank lines of credit for this purpose. As of May 12, 2008, the
Funds' borrowing arrangements were as follows: Advantage Income Fund's
collateralized $160 million bank line of credit matured in March 2008, was
5
extended and was fully repaid on May 1, 2008, and has been irrevocably
terminated. As of May 12, 2008, Advantage Income Fund had no available bank
line of credit for leverage purposes. High Income Fund's collateralized $125
million bank line of credit matured in December 2007, was extended and fully
repaid on April 22, 2008, and has been irrevocably terminated. As of May 12,
2008, High Income Fund had no available bank line of credit for leverage
purposes. Multi-Sector High Income's collateralized $180 million bank line of
credit matured in March 2008, was extended and was fully repaid on May 5, 2008,
and has been irrevocably terminated. As of May 12, 2008, Multi-Sector High
Income Fund had no available bank line of credit for leverage purposes.
Strategic Income Fund has a collateralized $150 million bank line of credit
which matures on July 11, 2008. As of May 12, 2008, the outstanding balance on
the line of credit was $3 million. It is expected that the line of credit will
be repaid in full at or prior to maturity and will be irrevocably terminated.
It is also expected that HBAM will evaluate whether to establish new bank lines
of credit or other financing arrangements for leverage purposes, consistent with
applicable laws and regulations.
HBAM AND ITS AFFILIATES
HBAM, a wholly-owned subsidiary of Brookfield Asset Management Inc.
("BAM"), is a Delaware corporation organized in February 1989 and a registered
investment adviser under the Advisers Act. The business address of HBAM and its
officers and directors is Three World Financial Center, 200 Vesey Street, 10th
Floor, New York, New York 10281-1010. As of March 31, 2008, HBAM and its
affiliates had approximately $21.4 billion in assets under management. HBAM's
clients include pension plans, foundations and endowments, insurance companies,
real estate investment trusts and closed-end investment companies. HBAM also
provides portfolio evaluation and consultation services. In its investment
process, HBAM focuses on relative value opportunities, particularly in the
mortgage-backed securities and asset-backed securities markets. BAM, an
Ontario, Canada corporation, has its principal place of business at Brookfield
Place, 181 Bay Street Suite 300, P.O. Box 762, Toronto, Ontario M5J 2T3.
Under an existing consulting agreement with the Funds dated as of August
3, 2007 (the "Consulting Agreement"), HBAM is responsible for furnishing the
Funds with advice regarding asset valuations. In this regard, HBAM is
responsible for, among other things, assisting the Funds, on a daily basis, in
their determination of an estimated "fair value" for certain portfolio
securities. If the New Advisory Agreements are approved by shareholders and the
Transaction is consummated, the Consulting Agreement will terminate, and HBAM
will provide substantially similar services under the New Advisory Agreements.
ANTICIPATED BENEFITS OF THE TRANSACTION
The Boards anticipate that the Transaction will benefit the Funds in a
number of ways, including:
o HBAM's depth of investment experience with asset-backed and
mortgage-backed securities should enhance the service to the Funds'
shareholders. HBAM has substantial experience, qualifications and
capabilities in managing investment companies with fixed income assets
that are comparable to the Funds' portfolio holdings. HBAM has
extensive investment management experience with sectors of the fixed
income market including mortgage-backed securities, structured
products, core fixed income and corporate high-yield bonds and loans.
HBAM's corporate high-yield team of five investment professionals has
managed portfolios together for more than 12 years, and has experience
managing high yield funds for both retail and institutional clients.
They have experience managing more than $5 billion at their prior firm,
including more than $2 billion in leveraged closed-end funds. HBAM has
developed an in-depth knowledge of the Funds' portfolio holdings as a
6
result of providing asset valuation consulting services to the Funds
since August 2007.
o It is expected that each Fund's investment objectives, policies and
restrictions (as set forth in the registration statement) will remain
the same after the Transaction. Nevertheless, HBAM is also expected to
review the current holdings and composition of the Funds' portfolios
and may, consistent with applicable investment policies and
restrictions, make certain changes in any Fund's portfolio investments.
In selecting securities to purchase or sell, HBAM has indicated that it
will seek to improve the overall risk profile of the portfolios in
light of current market conditions, generate current income, enhance
liquidity and improve the Funds' ability to obtain favorable leverage
arrangements. There is no guarantee that HBAM will achieve these goals.
Moreover, restructuring of a Fund's portfolio will involve transaction
costs, which will be borne by the Fund, and may result in the
realization of taxable capital gains or losses.
o As a result of the Expense Limitation Agreements (defined below) the
maximum annual operating expense ratio of each Fund will be no higher
than the current maximum annual operating expense ratio of the Fund for
a period of at least two years after the Transaction.
SPECIAL MEETING-PROPOSAL 1: APPROVAL OF A NEW ADVISORY AGREEMENT BETWEEN EACH
FUND AND HBAM
At the joint Special Meeting, shareholders of each Fund are being asked to
approve the New Advisory Agreement between their Fund and HBAM. If the
shareholders approve the New Advisory Agreements and elect the Nominees
specified in Proposal 2 for each Fund, HBAM will become the investment adviser
upon the closing of the Transaction. The closing of the Transaction is
conditioned upon approval of all of the advisory agreements and the election of
the new board of the Open-End Funds, as well as other terms and conditions. MAM
will no longer serve as investment adviser to each Fund, effective upon closing
of the Transaction. The effectiveness of the New Advisory Agreement is
contingent upon the election by shareholders of the Nominees identified in
Proposal 2 as directors of the Fund and the consummation of the Transaction.
REASONS FOR BOARD APPROVAL AND RECOMMENDATION
BACKGROUND. In late 2007, HBAM, which had been serving as a valuation
consultant to the Funds since August 2007, expressed an interest in becoming the
Funds' investment adviser and began discussions with MAM regarding HBAM taking
over the management of the Funds. MAM requested and received a proposal from
HBAM under which HBAM would serve as investment adviser to the Funds. The
details of the proposal from HBAM (the "Proposal") were discussed with the
Independent Directors during a telephonic meeting on January 16, 2008 and at an
in-person meeting held on January 23, 2008. MAM represented to the Boards that
MAM believed that the Proposal was in the best interests of Fund shareholders.
The essential elements of the Proposal have been incorporated into the Adoption
Agreement.
The Boards or Independent Directors met telephonically several times to
discuss the Proposal. During these meetings, and at an in-person meeting on
April 21, 2008, the Boards evaluated the resources, capabilities and performance
of HBAM in order to make an informed decision as to whether the engagement of
HBAM would be in the best interests of each Fund and its shareholders. The
Boards requested and received information and materials from HBAM and MAM and
familiarized themselves with, among other things, HBAM's structure, personnel,
investment philosophy and performance, financial condition, and organizational
and compliance resources. The Boards also met in person with representatives of
7
HBAM on two occasions, and individual Board members conducted further meetings
at HBAM's offices.
During these meetings, the Boards met with Mr. Dana E. Erikson, CFA, who
is expected to be the Funds' lead portfolio manager, and Mr. Anthony Breaks who
is expected to be the Funds' co-portfolio manager. The Boards noted that Mr.
Erikson has 21 years of experience in managing portfolios with investments
similar to the Funds. The Boards further noted that Mr. Erikson currently leads
a team of five investment professionals ("High Yield Team") who joined HBAM in
2006 and focus on high yield assets, including bank debt, corporate high yield,
equities, private placements and distressed debt. HBAM informed the Boards that
the High Yield Team has worked together since 1996 and has experience managing
leveraged closed-end funds, open-end funds, separate accounts and portions of
asset allocation funds. HBAM provided information to the Boards with respect to
other members of the High Yield Team, including a senior portfolio manager on
the team who has experience investing in private placements, high yield and bank
debt and who has worked in this investment area for nearly 30 years. HBAM also
noted that the High Yield Team includes two senior analysts, each of whom has
more than 15 years of relevant experience, and a dedicated trader. HBAM also
provided the Boards with information regarding Mr. Breaks' background and
expertise. The Boards noted that Mr. Breaks is part of a separate 15 member team
focusing on structured mortgage-related investment products (including
collateralized debt obligations), an area to which HBAM stated that it has
committed substantial resources since its founding in 1989. The Boards noted Mr.
Breaks had been with HBAM and BAM for six years. Lastly, the Boards noted that
each of the members of the High Yield Team and Mr. Breaks has previously worked
at other large asset management companies and/or broker-dealers.
The Boards considered the details of the Proposal. Among other things,
the Boards considered the New Advisory Agreements, the Expense Limitation
Agreements (defined below) and post-transaction services for the Funds. In
addition, the Boards considered that the Proposal contemplates the election of
the New Boards, which would consist of individuals proposed by HBAM, and the
current members of the Boards would no longer serve as directors. The Boards
noted that election of the New Boards' members would be contingent upon
shareholder approval of the New Advisory Agreements. Further, the Boards noted
that, under the Adoption Agreement, HBAM agreed to pay Morgan Keegan a fee of up
to $8 million in two payments over a two year period based on the Funds'
annualized advisory fees and, with respect to the Open-End Funds, to pay Morgan
Keegan a fee for distribution assistance in respect of the Open-End Funds for a
period of one year following the Transaction closing date equal to 0.15% of the
Open-End Funds' average daily net asset value. The Boards also noted that in
connection with the Transaction, MAM and Regions agreed to indemnify each Fund
for amounts payable by the Fund to MAM's or Region's officers, directors or
employees, or any corporate affiliate of MAM or Regions, pursuant to any
agreement or indemnification obligation of the Funds to such persons, and that
MAM and Regions also waived all rights of indemnification under any agreement or
indemnification obligation of the Funds. As part of the Proposal, MAM and
Regions agreed to provide certain indemnifications to HBAM. HBAM, the Funds,
the Open-End Funds, MAM and its affiliates have entered into an agreement to
permit HBAM and the Funds to use the names and marks Morgan Keegan, Morgan,
Regions, Regions Morgan Keegan and RMK as a distinctive part of their names for
a period 60 days after the closing of the Transaction.
After careful consideration and review of, and discussion about, all the
materials and information received from all parties, the Boards determined it
was in the best interests of the Funds to approve HBAM as the new investment
adviser. As stated above, the directors who were present at the in-person
meeting held on April 21, 2008, including all of the Independent Directors,
unanimously approved the New Advisory Agreement between HBAM and each Fund and
unanimously recommended that each Fund's shareholders approve the New Advisory
Agreement. A summary of the Boards' considerations are provided below in the
8
section below entitled "Independent Directors Committees and Board
Considerations of the New Advisory Agreements."
INDEPENDENT DIRECTORS COMMITTEE AND BOARD CONSIDERATIONS OF THE NEW
ADVISORY AGREEMENTS. In approving the New Advisory Agreements and determining
to submit them to shareholders for approval, the directors considered a wide
variety of factors. The Independent Directors were assisted by independent
legal counsel during their deliberations and received a memorandum from such
counsel discussing the legal standards for their consideration of the New
Advisory Agreements and related matters. They also met in person with such
counsel separately from representatives of MAM and HBAM to discuss the Proposal.
In evaluating the New Advisory Agreements, the Boards reviewed information
furnished by HBAM and MAM in response to questions submitted by independent
legal counsel on their behalf.
In approving the New Advisory Agreements, the Boards determined that the
terms of the New Advisory Agreements are fair and reasonable and that approval
of the New Advisory Agreement on behalf of each Fund is in the best interests of
that Fund. In their deliberations, the Boards did not identify any single
factor or information as all-important or controlling, and each director may
have attributed different weights to the various factors. Among other things,
the directors considered:
(1) THE QUALIFICATIONS OF HBAM, INCLUDING THE NATURE, EXTENT AND QUALITY
OF THE SERVICES TO BE PROVIDED. The Boards first considered whether HBAM was
qualified to assume the management of the Funds. The Boards considered the
reputation, financial strength, key services and operations, resources and
expertise of HBAM as a firm, including the structure of its organization, its
relationships, its historical expertise in the asset-backed securities market,
coupled with expanding capabilities in the core fixed income and high yield
sectors, and its ability to attract and maintain highly-qualified, professional
talent. The Boards noted particularly that HBAM's research team has designed
advanced proprietary investment technology platforms for the monitoring,
analysis and management of risk/reward attributes across all sectors of the
fixed income market. Further, the Boards noted that HBAM manages in excess of
$21 billion for a client base including, but not limited to, insurance
companies, pension funds, financial institutions, registered investment
companies and foundations. The Boards considered the quality and nature of the
proposed investment advisory services to be provided to the Funds by HBAM as
compared to those provided by MAM.
Next, the Boards considered the qualifications and experience of the
investment advisory personnel at HBAM. In particular, the Boards considered the
background and expertise of Mr. Dana Erikson, the head of HBAM's High Yield
Team, as the proposed lead portfolio manager of the Funds, with the day-to-day
responsibility for the management of the Funds. The Boards noted that Mr.
Erikson is responsible for HBAM's corporate high yield exposures and the
establishment of portfolio objectives and strategies. The Boards also noted the
experience of the other members of HBAM's High Yield Team, as well as that of
Mr. Anthony Breaks and his team, and considered that HBAM applies a team-
oriented approach to the fundamental analysis that drives its relative value-
oriented investment decision-making process. This process contemplates a
relative valuation of the entire capital structure of a potential investment,
which includes valuation of the equity, bonds and bank debt, to determine the
optimal way to gain exposure to the issuing company. The Boards concluded that
HBAM's experience and personnel made HBAM well-qualified to manage each Fund's
portfolio in accordance with its investment objectives and strategies, and that
there was potential that shareholders would benefit from HBAM's management of
the Funds.
The Boards further considered HBAM's methodology for compensating the
Funds' portfolio manager and the rest of the portfolio management, trading and
research team. The Boards also considered HBAM's investment philosophy and its
investment outlook for the Funds. The Boards noted that HBAM's commitment to a
9
relative value investment philosophy has continued throughout its history.
Additionally, the Boards considered whether HBAM would be able to meet the
compliance demands set forth under various regulations. The Boards reviewed
materials regarding HBAM's compliance program and code of ethics and discussed
the compliance program with HBAM's Chief Compliance Officer.
The Boards concluded that the intended scope of HBAM's services was
satisfactory and comparable to those currently provided by MAM and that there
should be no diminution of the scope or quality of the advisory services
provided to the Funds under the New Advisory Agreements.
(2) THE INVESTMENT PERFORMANCE OF HBAM. The Boards considered the
investment performance of HBAM's registered investment companies and the
performance record of the High Yield Team. The Boards compared the long-term
performance of the High Yield Team's composite to its benchmark and to the
performance of the Funds. Based on these factors the Boards concluded that the
overall performance results supported the approval of the New Advisory
Agreements.
(3) THE REASONABLENESS OF THE ADVISORY FEES. In evaluating the costs of
the services to be provided by HBAM under the New Advisory Agreements and the
profitability of HBAM with respect to each Fund, the Boards considered, among
other things, whether advisory fees or other expenses would change as a result
of the new arrangements. The Boards noted that the fees payable under the New
Advisory Agreements would be the same as those payable under the Current
Advisory Agreements. As part of their analysis, the Boards examined the fees
payable under the New Advisory Agreements and the total expense ratio of each
Fund in comparison to the fees and total expense ratios for its peer group. The
Boards noted that the advisory fees and the total expense ratios for each Fund
were near the mean of figures provided by an independent data service for other
leveraged high current yield funds while the advisory fees were at, and the
total expense ratios were slightly above, the median of figures for the other
leveraged high current yield funds. The Boards further noted that pursuant to
the Expense Limitation Agreements (defined below), HBAM would agree to waive a
portion of its fees and reimburse certain expenses of the Funds for a period of
two years after each New Advisory Agreement takes effect so that the maximum
annual operating expense ratio of each Fund does not exceed the maximum annual
operating expense ratio under the current contractual expense limitation
arrangement between MAM and the Fund.
The Boards then considered HBAM's management of other registered
investment companies and similarly managed accounts. The Boards noted that the
advisory fees paid by the other registered investment companies and similarly
managed accounts were comparable to the advisory fees proposed to be paid by
each Fund. The Boards concluded that the level of advisory fee to be charged to
each Fund was reasonable in light of these factors.
(4) THE PROFITABILITY OF HBAM WITH RESPECT TO ITS RELATIONSHIP WITH EACH
FUND. The Boards considered what benefits HBAM would derive from the management
of the Funds and whether it would have a financial interest in the matters that
were being considered. The Boards reviewed information regarding the estimated
profitability to HBAM of its relationship with the Funds and considered whether
the profits would be reasonable. The profitability analysis took into
consideration fall-out benefits from HBAM's relationship with the Funds. The
Boards found that the estimated profits to be realized by HBAM from its
relationship with the Funds were likely to be reasonable.
(5) THE EXTENT TO WHICH ECONOMIES OF SCALE MIGHT BE REALIZED AS EACH FUND
GROWS. The Boards considered whether economies of scale would be realized by
the Funds at higher asset levels. The Boards also assessed whether certain of
HBAM's costs would increase if asset levels rise. The Boards considered each
Fund's current asset size and concluded that under foreseeable conditions, they
were unable to assess at the present time whether economies of scale would be
realized if the Funds were to experience significant asset growth. The Boards
10
noted that HBAM has represented that it expects to analyze whether economies of
scale can be recognized in the future should the Funds' assets under management
grow and, should economies of scale emerge, would recommend an appropriate
arrangement to share the benefits of such economies with Fund shareholders.
(6) POSSIBLE CONFLICTS OF INTEREST. The Boards also discussed HBAM's
methods of dealing with conflicts of interest. The Boards noted that HBAM has
adopted compliance policies and procedures that are designed to address the
various conflicts of interest that may arise for HBAM and the individuals that
it employs. For example, the Boards noted that HBAM seeks to minimize the
effects of competing interests for the time and attention of portfolio managers
by assigning portfolio managers to manage funds and accounts that share a
similar investment style. The Boards further noted that HBAM also has adopted
trade allocation procedures that are designed to facilitate the fair allocation
of limited investment opportunities among multiple funds and accounts.
BOARD APPROVAL AND RECOMMENDATION OF THE NEW ADVISORY AGREEMENTS. As a
result of the considerations described above, the Boards, including all of the
Independent Directors, determined to approve the New Advisory Agreements with
HBAM. Based on these considerations, the Boards were satisfied that: (1) the
Funds were likely to benefit from the nature, quality and extent of HBAM's
services; and (2) HBAM has the resources to provide the services and to carry
out its responsibilities under the New Advisory Agreements. The Boards,
including all of the Independent Directors, concluded that the terms of the New
Advisory Agreements are fair and reasonable, that the fees stated therein,
including ancillary benefits, are reasonable in light of the services to be
provided to the Funds, and for these reasons the Boards approved the New
Advisory Agreements and concluded that the New Advisory Agreement should be
recommended to each Fund's shareholders for their approval. Based on the
foregoing, the Boards, including all of the Independent Directors, who were
present at the meeting held in person on April 21, 2008, unanimously voted to
approve and to recommend to the shareholders of each Fund that they approve the
New Advisory Agreement.
TERMS OF THE NEW ADVISORY AGREEMENT
The form of the New Advisory Agreement is attached as Appendix A to this
Proxy Statement and the description of its terms in this section is qualified in
its entirety by reference to Appendix A. The terms of the New Advisory
Agreement are substantially similar to those of the Current Advisory Agreements.
However, there are certain differences of which you should be aware. The
following is a description of the New Advisory Agreement. A comparison of the
New Advisory Agreements and the Current Advisory Agreements is set forth below
in the section entitled "Differences Between the Current Advisory Agreements and
the New Advisory Agreements."
INVESTMENT ADVISORY SERVICES. HBAM will serve as the investment adviser
to the Funds pursuant to the New Advisory Agreements. In addition to providing
investment advisory services to a Fund, the New Advisory Agreement provides that
HBAM will (1) act as investment adviser and direct the investment and
reinvestment of the Fund's assets and in connection therewith will have complete
discretion in purchasing and selling securities and other assets for the Fund
and in voting, exercising consents and exercising all other rights pertaining to
such securities and other assets on behalf of the Fund, and (2) arrange for the
purchase and sale of securities and other assets held in the investment
portfolio of the Fund, including the selection of entities through which such
transactions are to be effected. The New Advisory Agreements permit HBAM to
effect securities transactions on behalf of the Funds through affiliated persons
of HBAM. The New Advisory Agreements also permit HBAM to compensate, through
higher commissions, brokers and dealers (other than its affiliates) who provide
investment research and analysis to the Funds and to other advisory accounts
over which it or its affiliates exercise investment discretion in accordance
11
with Section 28(e) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
During the fiscal year ended March 31, 2008, the Funds did not pay any
commissions to brokers affiliated with MAM.
ADVISORY FEES AND EXPENSES. Each Fund will pay HBAM an advisory fee based
on its average daily net assets. The advisory fee will be equal to an annual
rate based on the following fee schedule:
- --------------------------------------------------------------------------------
Fund % of Fund's daily net assets paid to HBAM
- --------------------------------------------------------------------------------
RMK Advantage Income Fund, Inc. 0.65%
- --------------------------------------------------------------------------------
RMK High Income Fund, Inc. 0.65%
- --------------------------------------------------------------------------------
RMK Multi-Sector High Income Fund, Inc. 0.65%
- --------------------------------------------------------------------------------
RMK Strategic Income Fund, Inc. 0.65%
- --------------------------------------------------------------------------------
The advisory fees to be paid under the New Advisory Agreements are the
same as those paid under the Current Advisory Agreements. Please see the
discussion below.
The following table sets forth the aggregate amount of advisory fees paid
by the Funds to MAM during the last fiscal year ended March 31, 2008, pursuant
to the Current Advisory Agreements:
- --------------------------------------------------------------------------------
Fund Aggregate Fee Paid During the Last
Fiscal Year
- --------------------------------------------------------------------------------
RMK Advantage Income Fund, Inc. $3,693,108
- --------------------------------------------------------------------------------
RMK High Income Fund, Inc. $2,751,650
- --------------------------------------------------------------------------------
RMK Multi-Sector High Income Fund, Inc. $3,940,987
- --------------------------------------------------------------------------------
RMK Strategic Income Fund, Inc. $3,272,627
- --------------------------------------------------------------------------------
Under the New Advisory Agreement, each Fund will bear the expenses of its
operation, except those specifically allocated to HBAM under the New Advisory
Agreement or under any separate agreement between the Fund and HBAM. Subject to
any separate agreement or arrangement between the Fund and HBAM, the expenses
allocated to a Fund include, but are not limited to: (i) organizational
expenses; (ii) legal and audit expenses; (iii) borrowing expenses; (iv)
interest; (v) taxes; (vi) governmental fees; (vii) fees, voluntary assessments
and other expenses incurred in connection with membership in investment company
organizations; (viii) the cost (including brokerage commissions and issue or
transfer taxes or other charges, if any) of securities purchased or sold by the
Fund and any losses incurred in connection therewith; (ix) fees of custodians,
transfer agents, registrars, proxy voting services, pricing or valuation
services or other agents or service providers; (x) expenses of preparing share
certificates; (xi) expenses relating to the redemption or repurchase of shares;
(xii) expenses of registering and qualifying shares for sale under applicable
federal or state law and maintaining such registrations and qualifications;
(xiii) expenses of preparing, setting in print, printing and distributing
prospectuses, proxy statements, reports, notices and dividends to shareholders;
(xiv) cost of stationery; (xv) costs of shareholders and other meetings of the
12
Fund, including any expenses relating to proxy solicitation and vote tabulation;
(xvi) compensation and expenses of the independent directors of the Fund, and
officers of the Fund who are not officers, directors or employees of HBAM or its
affiliates, if any; (xvii) the Fund's portion of premiums of any fidelity bond
and other insurance covering the Fund and its officers and directors; (xviii)
the fees and other expenses of listing and maintaining the Fund's shares on the
New York Stock Exchange or any other national stock exchange; and (xix) any
extraordinary expenses (including fees and disbursements of counsel) incurred by
the Fund.
SERVICES TO OTHER CLIENTS. The New Advisory Agreements do not limit the
freedom of HBAM or any of its affiliates to render investment management or
administrative services to other investment companies, to act as investment
adviser or investment counselor to other persons, firms or corporations, or to
engage in other business activities. HBAM acts as investment adviser or sub-
adviser to other registered investment companies with similar investment
objectives and policies as the Funds. The following table sets forth the name,
asset size and compensation received by HBAM for providing advisory or sub-
advisory services to these other funds.
ADVISORY FEE RATE
NET ASSETS AS OF (AS A PERCENTAGE OF
NAME OF SIMILAR FUND MARCH 31, 2008 AVERAGE DAILY NET ASSETS)
-------------------- -------------- -------------------------
The Hyperion Brookfield Total Return Fund, Inc. $209 million 0.65%
The Hyperion Brookfield Strategic Mortgage Income Fund, Inc. $ 91 million 0.65%
Hyperion Brookfield Collateralized Securities Fund, Inc. $328 million 0.41%
Hyperion Brookfield Income Fund, Inc. $145 million 0.50%
LIMITATION OF LIABILITY. The New Advisory Agreement provides that neither
HBAM nor any director, officer, employee, agent or controlling person of HBAM
shall be liable for any act or omission or for any loss sustained by a Fund in
connection with matters to which the New Advisory Agreement relates, unless due
to willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties under the New Advisory Agreement.
TERM OF AGREEMENT. If approved by the shareholders of the Funds, the New
Advisory Agreements will take effect on the closing date of the Transaction and
will remain in effect for an initial term of two years. Thereafter, the New
Advisory Agreement will remain in effect with respect to a Fund from year to
year if approved annually (i) by the vote of the holders of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Fund or by the
Fund's Board of Directors, and (ii) by the vote, cast in person at a meeting
called for such purpose, of a majority of the Independent Directors.
TERMINATION. The New Advisory Agreement may be terminated, without
penalty, at any time by either party upon at least 60 days' prior written notice
to the other party; provided that in the case of termination by a Fund, the
termination has been authorized (i) by a majority of the Fund's directors or
(ii) by a vote of a majority of the outstanding voting securities (as defined in
the 1940 Act) of the Fund. Each New Advisory Agreement terminates automatically
in the event of its assignment (as defined in the 1940 Act).
13
DIFFERENCES BETWEEN THE CURRENT ADVISORY AGREEMENTS AND NEW ADVISORY AGREEMENTS
The following are the key differences between the New Advisory Agreements
and the Current Advisory Agreements:
o Under the Current Advisory Agreements, MAM does not have the specific
authority to delegate one or more of its responsibilities to
sub-advisers or administrators. The New Advisory Agreements give such
authority to HBAM, subject to Board approval and, to the extent
required by the 1940 Act, shareholder approval.
o The New Advisory Agreements provide that HBAM shall not be liable for
delays or errors occurring by reason of circumstances beyond its
control, including, but not limited to, acts of civil or military
authority, national emergencies, work stoppages, fire, flood,
catastrophe, acts of God, insurrection, war, riot, or failure of
communication or power supply. In the event of equipment breakdowns
beyond its control, HBAM is required to take reasonable steps to
minimize service interruptions but will have no liability with respect
thereto.
o The New Advisory Agreements will be governed by the laws of the State
of New York whereas the Current Advisory Agreements are governed by the
laws of the State of Maryland, in each case to the extent that state
law has not been preempted by the provisions of any law of the United
States.
OTHER AGREEMENTS RELATING TO THE FUNDS
NEW EXPENSE LIMITATION AGREEMENTS. In the interest of limiting the
expenses of the Funds following the transition of advisory services from MAM to
HBAM, the Boards have approved, and upon consummation of the Transaction HBAM
will enter into, an expense limitation agreement with respect to each Fund (the
"Expense Limitation Agreements") whereby HBAM will agree to waive a portion of
its fees and/or reimburse certain expenses of the Fund for a period of two years
after the New Advisory Agreements take effect to the extent necessary to ensure
that the annual operating expenses (excluding brokerage, interest expenses and
taxes, acquired fund fees and expenses) of each Fund does not exceed 1.30% of
average annual net assets of the Fund.
The terms of the Expense Limitation Agreements are substantially similar
to the terms under the current contractual expense limitation arrangements with
MAM. MAM has contractually agreed to waive fees and reimburse expenses through
October 31, 2008, so that the total annual operating expenses (excluding
brokerage, interest expenses and taxes) of each Fund do not exceed 1.30% of
average annual net assets of the Fund. MAM's current contractual expense
limitation arrangements with respect to each Fund will terminate upon
termination of the Current Advisory Agreements.
FUND ADMINISTRATIVE AND ACCOUNTING SERVICES. The Funds have each entered
into an Accounting and Administrative Services Agreement with Morgan Keegan.
Under the terms of the agreements, Morgan Keegan provides portfolio accounting
services and certain administrative personnel and services to the Funds for an
annual fee of 0.15% based on a percentage of each Fund's average daily total
assets minus the sum of accrued liabilities other than debt entered into for
purposes of leverage. It is expected that administrative and certain other
services will be transitioned to a third party shortly after consummation of the
Transaction.
14
SECTION 15(f) OF THE 1940 ACT
Section 15(f) of the 1940 Act permits an investment adviser of a
registered investment company (or any affiliated person of the investment
adviser) to receive any amount or benefit in connection with a sale of
securities of, or any other interest in, the investment adviser, provided that
two conditions are satisfied. First, an "unfair burden" may not be imposed on
the investment company as a result of the transaction, or any express or implied
terms, conditions or understandings applicable to the transaction. The term
"unfair burden" (as defined in the 1940 Act) includes any arrangement during the
two-year period after the transaction whereby the investment adviser (or
predecessor or successor adviser), or any "interested person" (as defined in the
1940 Act) of any such adviser, receives or is entitled to receive any
compensation, directly or indirectly, from the investment company or its
security holders (other than fees for bona fide investment advisory or other
services), or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the investment company
(other than ordinary fees for bona fide principal underwriting services).
Second, during the three-year period after the transaction, at least 75% of the
members of the investment company's board of directors cannot be "interested
persons" (as defined in the 1940 Act) of the investment adviser or the
predecessor adviser of such investment company. MAM and HBAM have agreed to
implement the provisions of Section 15(f).
MAM and HBAM believe that the Transaction will not result in the
imposition of an "unfair burden" on the Funds. In addition, HBAM has agreed
that, for the minimum time periods specified in Section 15(f), HBAM, subject to
compliance with its fiduciary duties, will use its commercially reasonable
efforts to take (or refrain from taking, as the case may be) such actions as are
necessary to ensure that: (i) at least 75% of each Fund's directors are
Independent Directors, and (ii) no "unfair burden" (as defined in the 1940 Act)
is imposed on the Funds as a result of the Transaction. At the present time,
more than 75% of the directors are Independent Directors. If shareholders
approve the election of all of the Nominees identified in Proposal 2, it is
expected that more than 75% of the Funds' directors after the Transaction will
be Independent Directors.
REQUIRED VOTE
Approval of this Proposal 1 by each Fund requires the affirmative vote of
a majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund, which means the vote (i) of 67% or more of the shares of the Fund
present at the Special Meeting if the holders of more than 50% of the Fund's
outstanding shares are present or represented by proxy, or (ii) of more than 50%
of the outstanding shares of the Fund, whichever is the less. Notwithstanding
approval of the New Advisory Agreements by shareholders of the Funds, the New
Advisory Agreements will not take effect unless the shareholders of each Fund
also elect the Nominees to serve as new directors and the Transaction is
consummated.
THE BOARDS RECOMMEND THAT SHAREHOLDERS OF THE FUNDS
VOTE "FOR" PROPOSAL 1.
15
ANNUAL MEETING-PROPOSAL 2: ELECTION OF BOARDS OF DIRECTORS
Each Board, based on the recommendation of its Independent Directors
Committee, has nominated the five Nominees for election as directors of the
Funds. Shareholders of the Funds are being asked to consider the election of
the Nominees. The Nominees are Robert F. Birch, Rodman L. Drake, Clifford E.
Lai, Stuart A. McFarland and Louis P. Salvatore. The Nominees are individuals
who were proposed by HBAM and currently serve as directors of other registered
investment companies that are advised by HBAM or its affiliates.
The Boards, based upon the recommendation of the Independent Directors
Committees, have also approved a decrease in the number of directors of the
Funds from six to five, with such decrease to take effect upon consummation of
the Transaction. Currently, each Board consists of six members including five
Independent Directors. The current Independent Directors are Albert C. Johnson,
James Stillman R. McFadden, W. Randall Pittman, Mary S. Stone and Archie W.
Willis, III. The current director who is an interested person (as defined in
the 1940 Act) of the Funds (the "Interested Director") is J. Kenneth Alderman.
Mr. Alderman also serves as Chairman.
It is expected that the current directors will no longer serve as
directors following the election of the Nominees and the consummation of the
Transaction. However, the decrease in the number of directors of the Company is
contingent upon, and the Nominees if elected at the Annual Meeting will not be
qualified as directors until, the consummation of the Transaction. Accordingly,
if the Transaction is not completed for any reason, the current directors will
continue to hold office until their respective successors are elected and
qualified, or until the earlier of a director's death, resignation or removal.
The terms of office of the current Class II Directors, Mr. Pittman and Ms.
Stone, expire at the Annual Meeting. The terms of office of the current Class I
Directors, Mr. McFadden and Mr. Alderman, and the current Class III Directors,
Mr. Johnson and Mr. Willis, expire at the 2009 and 2010 annual meetings,
respectively. The current Class I and Class III Directors will resign effective
upon consummation of the Transaction.
If elected and qualified, each Nominee will hold office as a director
until his successor is elected and qualified, or until the earlier of the
director's death, resignation or removal. Any director may be removed by
shareholders, with or without cause, by the affirmative vote of a majority of
all the votes entitled to be cast generally for the election of directors.
BOARD CONSIDERATION OF THE NOMINEES
At its April 21, 2008 meeting, the Boards considered proposals related to
the Transaction whereby HBAM would become the new investment adviser to the
Funds. The Transaction also contemplates that the New Boards would be elected
and that the current members of the Boards would no longer serve as directors
following consummation of the Transaction.
Each Nominee was proposed to the Independent Directors by HBAM as
contemplated by the Adoption Agreement. In selecting and nominating the
Nominees, the Independent Directors Committees and the Boards took into
consideration the qualifications, experience and background of each Nominee. In
addition, members of the Independent Directors Committees met in person with
each Nominee prior to the April 21, 2008 meeting. In particular, the
Independent Directors Committees and the Boards considered each Nominee's
familiarity with fixed income funds, including mortgage-backed and asset-backed
securities, as a result of his current service as a director of other comparable
funds, his expertise and his knowledge of the investment company industry.
16
INFORMATION CONCERNING NOMINEES
Each Nominee has consented to being named in this Proxy Statement and has
agreed to serve as a director of the Funds if elected; however, should any
Nominee become unable or unwilling to accept nomination or election, the persons
named in the proxies will exercise their voting power in favor of such other
person or persons as the Boards may recommend. There are no family
relationships among the Nominees.
The following table sets forth information concerning the Nominees:
- --------------------------------------------------------------------------------
POSITION(S) NUMBER OF OTHER
HELD WITH PORTFOLIOS DIRECTORSHIP(S)
FUNDS, IN FUND HELD BY
NAME, TERM OF PRINCIPAL COMPLEX DIRECTOR
ADDRESS(1) OFFICE OCCUPATION(S) OVERSEEN
AND AGE AND LENGTH DURING PAST BY
OF TIME FIVE YEARS DIRECTOR(2)
SERVED
- --------------------------------------------------------------------------------
CLASS I DISINTERESTED DIRECTORS TO SERVE UNTIL 2009 ANNUAL MEETING OF
SHAREHOLDERS:
- --------------------------------------------------------------------------------
Robert F. Birch None President of 11 Director of several
Age 72 New America investment companies
High Income advised by HBAM or by
Fund its affiliates
(1992-Present). (1998-Present);
Director of New
America High Income
Fund (1992-Present);
Director of Brandywine
Funds (3) (2001-
Present).
- --------------------------------------------------------------------------------
Stuart A. None Managing 11 Director of several
McFarland Partner of investment companies
Age 60 Federal City advised by HBAM or its
Capital affiliates
Advisors (2006-Present);
(1997-Present). Director of Brandywine
Funds (2003-Present);
Director of New Castle
Investment Corp.
(2000-Present);
Chairman and Chief
Executive Officer of
Federal City Bancorp,
Inc. (2005-2007).
- --------------------------------------------------------------------------------
CLASS II DISINTERESTED DIRECTOR TO SERVE UNTIL 2010 ANNUAL MEETING OF
SHAREHOLDERS:
- --------------------------------------------------------------------------------
Rodman L. Drake None General Partner 11 Chairman (since 2003)
Age 65 of Resource and Director of
Capital II & several investment
III CIP L.P. companies advised by
(1998-2006); HBAM or by its
Co-founder of affiliates
Baringo Capital (1989-Present);
LLC Director, and/or Lead
(2002-Present). Director of Crystal
River Capital, Inc.
(2005-Present);
Director of Celgene
Corporation (April
2006-Present); Director
of Student Loan
Corporation
(2005-Present);
Director of Apex Silver
Corp (2007-Present);
Director of Jackson
Hewitt Tax Services
Inc. (2004-Present);
Director of Animal
Medical Center
(2002-Present);
Director and/or Lead
Director of Parsons
Brinckerhoff, Inc.
(1995-2008); Trustee
and/or Chairman of
Excelsior Funds
(1994-2008); Trustee of
Columbia Atlantic Funds
(2007-Present).
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
POSITION(S) NUMBER OF OTHER
HELD WITH PORTFOLIOS DIRECTORSHIP(S)
FUNDS, IN FUND HELD BY
NAME, TERM OF PRINCIPAL COMPLEX DIRECTOR
ADDRESS(1) OFFICE OCCUPATION(S) OVERSEEN
AND AGE AND LENGTH DURING PAST BY
OF TIME FIVE YEARS DIRECTOR(2)
SERVED
- --------------------------------------------------------------------------------
CLASS III DISINTERESTED DIRECTOR TO SERVE UNTIL 2011 ANNUAL MEETING OF
SHAREHOLDERS:
- --------------------------------------------------------------------------------
Louis P. None Employee of 11 Director of several
Salvatore Arthur Andersen investment companies
Age 61 LLP advised by HBAM or by
(2002-Present); its affiliates
Partner of (2005-Present);
Arthur Andersen Director of Crystal
LLP (1977-2002). River Capital, Inc.
(2005-Present);
Director of Turner
Corp. (2003-Present);
Director of Jackson
Hewitt Tax Services,
Inc. (2004-Present).
- --------------------------------------------------------------------------------
CLASS III INTERESTED DIRECTOR TO SERVE UNTIL 2011 ANNUAL MEETING OF
SHAREHOLDERS:
- --------------------------------------------------------------------------------
Clifford E. Lai None Managing 11 Director of several
Age 54 Partner of investment companies
Brookfield advised by HBAM or by
Asset its affiliates
Management, (2005-Present);
Inc. (2006- Director of Crystal
Present); River Capital, Inc.
Chairman (2005- (2005-Present).
Present), Chief
Executive
Officer (1998-
2007), President
(1998-2006) and
Chief Investment
Officer (1993-
2002) of the
Advisor;
President and
Chief Executive
Officer (2005-
2008) and
Director of
Crystal River
Capital, Inc.
(2005-Present);
President and
Director of
several
investment
companies
advised by the
Advisor or by
its affiliates
(1995-Present);
and Co-Chairman
(2003-2006) and
Board of
Managers (1995-
2006) of
Hyperion GMAC
Capital Advisors,
LLC (formerly
Lend Lease
Hyperion Capital,
LLC).
- --------------------------------------------------------------------------------
(1) The address of each Nominee is Three World Financial Center, 200 Vesey
Street, 10th Floor, New York, New York 10281-1010.
(2) The number includes the Funds, the Open-End Funds and four registered
investment companies currently overseen by the Nominees.
18
OWNERSHIP OF FUND SHARES
The following table sets forth, for each Nominee, the dollar range of
equity shares beneficially owned in the Funds as of May 5, 2008. The
information as to beneficial ownership is based on statements furnished to the
Funds by each Nominee. Beneficial ownership means having directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise, a direct or indirect pecuniary interest in shares of a Fund, and
includes shares of the Funds held by members of the person's immediate family
sharing the same household; provided, however, that the presumption of such
beneficial ownership may be rebutted. Unless otherwise noted, each Nominee's
individual beneficial shareholdings of a Fund constitute less than 1% of the
outstanding shares of the Fund.
NAME OF NOMINEE AGGREGATE DOLLAR RANGE OF AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN THE FUNDS EQUITY SECURITIES IN
INVESTMENT COMPANIES
OVERSEEN BY DIRECTOR IN
FUND COMPLEX*
Robert F. Birch None None
Rodman L. Drake None None
Clifford E. Lai None None
Stuart A. McFarland None None
Louis P. Salvatore None None
* This column reflects information regarding ownership of equity securities
issued by funds in the Regions Morgan Keegan fund complex.
BOARD AND COMMITTEE MEETINGS
The Boards met 17 times during the Funds' fiscal year ended March 31,
2008. Each director attended at least 75% of the total number of meetings of
the Boards and of any committee of which he or she was a member during that
year. Each Board has an Audit Committee, an Independent Directors Committee and
a Qualified Legal Compliance Committee.
The Audit Committees are composed of all of the Independent Directors.
The members of the Audit Committees are Messrs. Johnson, McFadden, Pittman and
Willis, and Ms. Stone. The principal functions of the Audit Committees are to
select independent accountants to conduct the annual audits of a Fund's
financial statements, review with the independent accountants the outline, scope
and results of the annual audit, and review the performance and approve all fees
charged by the independent accountants for audit, audit-related and other
professional services. In addition, the Audit Committees meet with the
independent accountants and representatives of management to review accounting
activities and areas of financial reporting and control. It is anticipated
that, if the Nominees are elected, the New Boards will appoint new members of
the Audit Committees.
The Audit Committees met six times during the Funds' fiscal year ended
March 31, 2008. As of the date of this Proxy Statement, the audits of the
financial statements for the fiscal year ended March 31, 2008 have not been
completed. The Audit Committees are expected to meet in May 2008 to review the
Funds' 2008 audited financial statements after which a copy of the report of the
Audit Committees will be available to shareholders upon request.
19
The Independent Directors Committees are composed of all of the
Independent Directors. The members of the Independent Directors Committees are
Messrs. Johnson, McFadden, Pittman and Willis, and Ms. Stone. The Independent
Directors Committees must determine at least annually with respect to the Funds'
advisory agreements and periodically with respect to other arrangements whether
these arrangements should be approved for continuation. The Independent
Directors Committees also are responsible for evaluating and recommending the
selection and nomination of candidates for election as directors of the Funds,
including Independent Directors, assessing whether directors should be added or
removed from the Boards and recommending to the Boards policies concerning
Independent Director compensation and retirement, investment in the Funds, Board
and committee governance procedures and resources for Independent Directors and
periodically reviewing compliance with any such policies adopted. The
Independent Directors Committees also nominate candidates for membership on all
Board committees. Each Board has adopted a written charter for its Independent
Directors Committee.
While there is no formal list of qualifications, the Independent Director
Committees consider, among other things, whether prospective nominees have
distinguished records in their primary careers, high integrity and substantive
knowledge in areas important to the Boards' operations, such as a background or
education in finance, auditing or the workings of the securities markets. For
candidates to serve as Independent Directors, independence from the investment
adviser, its affiliates and other principal service providers is critical, as is
an independent and questioning mindset. The Independent Directors Committees
also consider whether the prospective candidates' workloads would allow them to
attend the vast majority of Board meetings, be available for service on Board
committees, and devote the additional time and effort necessary to remain
apprised of Board matters and the rapidly changing regulatory environment in
which the Funds operate.
The Independent Directors Committees will consider candidates recommended
by shareholders on the basis of the same criteria used to consider and evaluate
candidates recommended by other sources. The Committees will consider
candidates recommended by shareholders if such proposed nominations are
submitted in writing to the attention of Charles D. Maxwell (addressed c/o the
Funds, Fifty North Front Street, 21[st] Floor, Memphis, Tennessee 38103).
In addition, each Fund has a Qualified Legal Compliance Committee (the
"QLCC") composed of all of the Independent Directors. The QLCCs receive, review
and take appropriate action with respect to any report made or referred to a
QLCC by an attorney of evidence of a material violation of applicable U.S.
federal or state securities law, material breach of fiduciary duty under U.S.
federal or state law or a similar material violation by a Fund or by an officer,
director, employee or agent of a Fund. The QLCCs did not meet during the fiscal
year ended March 31, 2008.
It is anticipated that, if the Nominees are elected, the New Boards will
appoint new members of the Independent Directors Committees and QLCCs.
20
INFORMATION ABOUT THE FUNDS' CURRENT OFFICERS
- --------------------------------------------------------------------------------
POSITION(S) HELD
WITH THE FUNDS,
NAME, TERM OF OFFICE
ADDRESS(1) AND LENGTH OF PRINCIPAL OCCUPATION(S) DURING
AND AGE TIME SERVED(2) PAST FIVE YEARS
- --------------------------------------------------------------------------------
Brian B. Sullivan President Mr. Sullivan has served as President
Age 53 (Since 2006) and Chief Investment Officer of Morgan
Asset Management, Inc. since 2006.
From 1999 to 2002 and from 2005 to
2007, Mr. Sullivan served as President
of AmSouth Asset Management, Inc.,
which merged into Morgan Asset
Management, Inc. in late 2007. From
1996 to 1999 and from 2002 to 2005,
Mr. Sullivan served as Vice President
of AmSouth Asset Management, Inc.
Since joining AmSouth Bank in 1982
through 1996, Mr. Sullivan served in
various capacities including Equity
Research Analyst and Chief Fixed
Income Officer and was responsible for
Employee Benefits Portfolio Management
and Regional Trust Investments. He
holds the Chartered Financial Analyst
designation.
- --------------------------------------------------------------------------------
Thomas R. Gamble Vice-President Mr. Gamble has been an executive at
Age 65 (Since 2003) Regions Financial Corporation since
1981. He was a Corporate IRA Manager
from 2000 to 2001 and a Senior Vice
President and Manager of Employee
Benefits at the Birmingham Trust
Department of Regions Bank from 1981
to 2000.
- --------------------------------------------------------------------------------
J. Thompson Weller Treasurer Mr. Weller has been a Managing
Age 43 (Since 2006) Director and Controller of Morgan
and Assistant Keegan & Company, Inc. since 2001. He
Secretary was Senior Vice President and
(Since 2003) Controller of Morgan Keegan & Company,
Inc. from 1998 to 2001, Controller and
First Vice President from 1997 to
1998, Controller and Vice President
from 1995 to 1997 and Assistant
Controller from 1992 to 1995. Mr.
Weller also served as a Business
Systems Analyst in the Investment
Information Division of Metropolitan
Life Insurance Co. from 1991 to 1992.
Mr. Weller was also with Arthur
Andersen & Co. in 1988 and Andersen
Consulting from 1989 to 1991.
- --------------------------------------------------------------------------------
Charles D. Maxwell Secretary and Mr. Maxwell has been Executive
Age 54 Assistant Managing Director, Chief Financial
Treasurer Officer, Treasurer and Secretary of
(Since 2003) Morgan Keegan & Company, Inc. since
2006. Mr. Maxwell previously served as
Managing Director of Morgan Keegan &
Company, Inc. from 1998 to 2006 and
Assistant Treasurer and Assistant
Secretary of Morgan Keegan & Company,
Inc. from 1994 to 2006. Mr. Maxwell
has been Secretary and Treasurer of
Morgan Asset Management, Inc. since
1993. He was Senior Vice President of
Morgan Keegan & Company, Inc. from
1995 to 1997. Mr. Maxwell was with the
accounting firm of Ernst & Young LLP
from 1976 to 1986 and served as a
senior manager from 1984 to 1986.
- --------------------------------------------------------------------------------
Michele F. Wood Chief Ms. Wood has been the Chief Compliance
Age 38 Compliance Officer of Morgan Asset Management,
Officer (Since Inc. since 2006 and is also a Senior
2006) Vice President of Morgan Keegan & Co.,
Inc. She was a Senior Attorney and
First Vice President of Morgan Keegan
& Company, Inc. from 2002 to 2006. She
was a Staff Attorney with FedEx
Corporation from 2001 and 2002
specializing in employment litigation.
She was an Associate with Ford &
Harrison LLP from 1997 to 2001.
- --------------------------------------------------------------------------------
(1) The address of Messrs. Weller and Maxwell and Ms. Wood is 50 North Front
Street, 21st Floor, Memphis, Tennessee 38103. The address of Messrs.
Sullivan and Gamble is 1901 6th Avenue North, Suite 400, Birmingham, Alabama
35203.
21
COMPENSATION OF DIRECTORS
Directors of the Funds who are Interested Directors receive no salary or
fees from the Funds. Independent Directors receive from each Fund an annual
retainer of $4,000 and a fee of $1,000 per quarterly meeting with reimbursement
by the Fund for related expenses for each meeting of the Board attended. Each
chairperson of the Independent Directors Committees and Audit Committees
receives annual compensation of $500 from each Fund. An additional $1,500 is
paid to the Independent Directors for attending special meetings in person, and
an additional $500 is paid for attending special meetings by telephone. No
director is entitled to receive pension or retirement benefits from the Funds.
The table below sets forth the compensation paid to the Nominees by the
Funds for the fiscal year ended March 31, 2008. For the calendar year ended
December 31, 2007, as indicated in the last column of the table below, the
Nominees did not receive any compensation from the registered investment
companies in the Regions Morgan Keegan fund complex.
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS ACCRUED AS ESTIMATED ANNUAL FROM THE FUNDS AND
NAME AND POSITION COMPENSATION PART OF FUND BENEFITS UPON FUND COMPLEX
WITH THE FUNDS FROM THE FUNDS EXPENSES RETIREMENT PAID TO NOMINEE
- -----------------------------------------------------------------------------------------------------
Robert F. Birch $0 N/A N/A $0
Nominee
Rodman L. Drake $0 N/A N/A $0
Nominee
Clifford E. Lai $0 N/A N/A $0
Nominee
Stuart A. McFarland $0 N/A N/A $0
Nominee
Louis P. Salvatore $0 N/A N/A $0
Nominee
PROCEDURES FOR COMMUNICATIONS TO THE BOARDS
The Board of each Fund has provided for a process by which shareholders
may send communications to the Board. If a shareholder wishes to send a
communication to a Board, or to a specified director, the communication should
be submitted in writing to the Secretary of the Fund, who will forward such
communication to the director. See "Director Attendance at Meetings and
Shareholder Communications" below.
REQUIRED VOTE
In the election of directors each Nominee must receive a plurality of the
votes cast at the Annual Meeting. A "plurality of the votes" means the
candidate must receive more votes than any other candidate for the same
position, but not necessarily a majority of the votes cast. If elected, the
Nominees will only serve as directors if qualified upon the closing of the
Transaction.
THE BOARDS RECOMMEND THAT SHAREHOLDERS
OF THE FUNDS VOTE "FOR" PROPOSAL 2.
22
ADDITIONAL INFORMATION
INVESTMENT ADVISER AND ADMINISTRATOR
MAM currently serves as investment adviser to each of the Funds. Morgan
Keegan currently serves as administrator to each of the Funds. The principal
offices of MAM are located at 1901 6[th] Avenue North, 4[th] Floor, Birmingham,
Alabama 35203. The principal offices of Morgan Keegan are located at 50 Front
Street, Memphis, Tennessee 38103. MAM and Morgan Keegan are wholly owned
subsidiaries of Regions.
INFORMATION ABOUT THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP ("PwC") served as each Fund's independent
registered public accounting firm to audit the Funds' financial statements for
the fiscal years ended March 31, 2007 and 2008. PwC also prepared each Fund's
federal and state income tax returns and provided certain permitted non-audit
services. PwC, in accordance with Independence Standards Board Standard No. 1,
has confirmed to the Audit Committees that they are independent auditors with
respect to each Fund. The Audit Committees considered whether the provision by
PwC to the Funds of non-audit services to the Funds or of professional services
to the Funds' investment adviser and entities that control, are controlled by or
are under common control with the adviser is compatible with maintaining PwC's
independence and has discussed PwC's independence with them. Representatives of
PwC are not expected to be present at the Meetings. but have been given the
opportunity to make a statement if they so desire and will be available should
any matter arise requiring their presence.
AUDIT FEES. The aggregate fees and expenses incurred with PwC for
professional services rendered for the audit of each Fund's financial statements
for the periods ended March 31, 2007 and 2008 were:
- --------------------------------------------------------------
2007 2008
- --------------------------------------------------------------
RMK Advantage Income Fund, Inc. $42,875 $95,250
- --------------------------------------------------------------
RMK High Income Fund, Inc. $42,875 $95,250
- --------------------------------------------------------------
RMK Multi-Sector High Income Fund, Inc. $42,875 $95,250
- --------------------------------------------------------------
RMK Strategic Income Fund, Inc. $42,875 $95,250
- --------------------------------------------------------------
AUDIT RELATED FEES. The aggregate fees and expenses incurred with PwC for
professional services rendered reasonably related to the performance of their
audits of the Funds' financial statements for the periods ended March 31, 2007
and 2008 were:
- --------------------------------------------------------------
2007 2008
- --------------------------------------------------------------
RMK Advantage Income Fund, Inc. $- $7,500
- --------------------------------------------------------------
RMK High Income Fund, Inc. $- $7,500
- --------------------------------------------------------------
RMK Multi-Sector High Income Fund, Inc. $- $7,500
- --------------------------------------------------------------
RMK Strategic Income Fund, Inc. $- $7,500
- --------------------------------------------------------------
TAX FEES. The aggregate fees incurred with PwC for professional services
rendered for tax compliance, tax advice and tax planning for the periods ended
March 31, 2007 and 2008 were:
- --------------------------------------------------------------
2007 2008
- --------------------------------------------------------------
RMK Advantage Income Fund, Inc. $3,500 $4,000
- --------------------------------------------------------------
RMK High Income Fund, Inc. $3,500 $4,000
- --------------------------------------------------------------
23
- --------------------------------------------------------------
RMK Multi-Sector High Income Fund, Inc. $3,500 $4,000
- --------------------------------------------------------------
RMK Strategic Income Fund, Inc. $3,500 $4,000
- --------------------------------------------------------------
Tax fees include amounts for tax compliance services.
ALL OTHER FEES. For the fiscal years ended March 31, 2007 and 2008, there
were no fees billed by PwC for professional services rendered for services other
than audit, audit related, and tax compliance, tax advice and tax planning.
The aggregate non-audit fees billed by PwC for professional services
rendered to the Funds, the Funds' investment adviser, and any entity
controlling, controlled by, or under common control with the adviser for the
periods ended March 31, 2007 and 2008 were:
- --------------------------------------------------------------
2007 2008
- --------------------------------------------------------------
RMK Advantage Income Fund, Inc. $3,500 $11,500
- --------------------------------------------------------------
RMK High Income Fund, Inc. $3,500 $11,500
- --------------------------------------------------------------
RMK Multi-Sector High Income Fund, Inc. $3,500 $11,500
- --------------------------------------------------------------
RMK Strategic Income Fund, Inc. $3,500 $11,500
- --------------------------------------------------------------
All non-audit services discussed above were pre-approved by the Audit
Committees, which considered whether these services were compatible with
maintaining PwC's independence.
LEGAL PROCEEDINGS
Beginning in late 2007, lawsuits were filed in the United States District
Court for the Western District of Tennessee relating to certain fixed income
funds managed by MAM, including the Funds. The complaints were filed as
putative class actions on behalf of investors who purchased shares of the Funds
from December 2004 through February 2008. The complaints name as defendants,
among others, the Funds, MAM, Morgan Keegan, Regions, current directors, certain
former directors, certain officers of the Funds and the Funds' portfolio
managers. The complaints allege that the defendants misrepresented or failed to
disclose material facts relating to portfolio composition, fair valuation,
liquidity and risk in fund registration statements and other documents. The
plaintiffs seek unspecified damages, in some cases damages and reasonable costs
and attorneys' fees. No class has been certified and each of the cases is at a
preliminary stage. No estimate of the effect, if any, of these lawsuits on the
Funds can be made at this time.
In addition, on March 12, 2008, a derivative action was filed in the
United States District Court for the Western District of Tennessee against,
among others, MAM, current directors and certain former directors, seeking
damages on behalf of the RMK Multi-Sector High Income Fund, Inc. The complaint
in this action alleges that defendants breached duties of care and mismanaged
the Fund, among other things. The complaint seeks unspecified damages and
reasonable costs and attorneys' fees. The proceeding is at a preliminary stage.
Similar claims have been made in lawsuits concerning the Open-End Funds
filed in the United States District Court for the Western District of Tennessee.
Defendants are seeking to have the cases involving the Funds and the Open-End
Funds consolidated in a single proceeding.
MAM and Morgan Keegan are named as defendants in one or more actions filed
in the United States District Courts for the Western District of Tennessee and
the Northern District of Alabama under the Employee Retirement Income Security
Act of 1974 ("ERISA"). Plaintiffs in the ERISA cases seek to represent classes
of participants and beneficiaries of savings and retirement plans ("Plans")
sponsored by Regions. The complaints in these actions allege that the
defendants breached fiduciary duties owed to class members and seek recovery of
24
losses incurred by the Plans by reason of the alleged breaches of duty,
restitution and other equitable relief, as well as costs and attorneys' fees.
No class has been certified and these proceedings are at a preliminary stage.
VOTING INFORMATION
For each Meeting, the presence, in person or by proxy, of shareholders
entitled to cast a majority of all the votes entitled to be cast at the Meeting
will constitute a quorum at the Meeting. Each outstanding full share of common
stock of each Fund is entitled to one vote, and each outstanding fractional
share thereof is entitled to a proportionate fractional share of one vote. If a
quorum is not present at a Meeting, the persons named as proxies may propose one
or more adjournments of the Meeting to permit further solicitation of proxies.
Any such adjournment will require the affirmative vote of a majority of those
shares represented at the Meeting in person or by proxy. The persons named as
proxies will vote those proxies that they are entitled to vote "FOR" any
proposal in favor of such an adjournment.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meetings in accordance with
the directions indicated in the proxies; if no direction is indicated, the
shares will be voted "FOR" the approval of the New Advisory Agreements as set
forth in Proposal 1 and "FOR" the election of each of the Nominees as set forth
in Proposal 2.
REQUIRED VOTE
To pass, Proposal 1 requires with respect to each Fund the vote (1) of 67%
or more of the shares of the Fund present at the Special Meeting, if more than
50% of the Fund's outstanding shares are present or represented by proxy at the
Special Meeting, or (2) of more than 50% of the outstanding shares of the Fund,
whichever is the less. In the election of directors under Proposal 2, each
Nominee must receive a plurality of the votes cast at the Annual Meeting. A
"plurality of the votes" means the candidate must receive more votes than any
other candidate for the same position, but not necessarily a majority of the
votes cast. The proposals do not require separate voting by class.
For purposes of determining whether shareholders have approved a proposal,
broker non-votes (i.e., shares held by brokers who do not have discretionary
authority to vote on a particular matter and for which the brokers have not
received voting instructions from their customers) and abstentions will be
counted as shares present at the Meetings for quorum purposes but will not be
voted for or against any adjournment or proposal. Accordingly, broker non-votes
and abstentions effectively will be votes "AGAINST" Proposal 1 because Proposal
1 requires the vote of a specified majority of a Fund's shares. However, the
Funds understand that brokers may vote on Proposal 2 on behalf of their
customers.
You may revoke your proxy at any time before the Meetings by providing
another proxy or by letter or telegram revoking the initial proxy. To be
effective, your revocation must be received by the Secretary of the Funds prior
to the Meetings and must include your name and account number. If you attend
the Meetings in person, you may vote by ballot, thereby canceling any proxy you
provided previously. Proxies voted by alternative forms may be revoked in the
same manner that proxies by mail may be revoked.
Shareholders who plan on attending the Meetings will be required to
provide valid identification in order to gain admission.
25
SOLICITATION OF PROXIES
The cost of preparing, assembling, printing and mailing the proxy
materials, and any additional solicitation expenses, including reimbursement of
brokerage firms and others for their expenses of forwarding proxy materials to
the beneficial owners of shares, will not be borne by the Funds. The principal
solicitation will be by mail, but proxies also may be solicited by telephone,
facsimile or other electronic communications or personal contact by
representatives of Morgan Keegan, the Funds' administrator, none of whom will
receive any compensation from the Funds for these activities. In addition,
Broadridge Financial Solutions, Inc., a proxy solicitation firm, may make
solicitations on behalf of the Boards by telephone or other means at a cost of
approximately $75,000.00 plus the expense of any solicitation. If votes are
recorded by telephone, Morgan Keegan will use procedures designed to
authenticate shareholders' identities, to allow shareholders to authorize the
voting of their shares in accordance with their instructions and to confirm that
a shareholder's instructions have been properly recorded.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act and Section 30(h) of the 1940 Act as
applied to each Fund require the Fund's directors, certain of the Fund's
officers, persons who beneficially own more than 10% of the Fund's common stock
and certain other persons to file reports of ownership of the Fund's common
stock and changes in such ownership on Forms 3, 4 and 5 with the SEC and the New
York Stock Exchange. Such persons are required by SEC regulations to furnish the
Fund with copies of all such filings. Based solely upon a review of the copies
of such forms furnished to the Funds during or with respect to the fiscal year
ended March 31, 2008, each Fund reports that all such persons have filed on a
timely basis the reports required by Section 16(a) of the Exchange Act, except
Mr. James C. Kelsoe, the Funds' portfolio manager, filed four late Form 4s with
respect to the Advantage Income Fund, three late Form 4s with respect to the
High Income Fund, three late Form 4s with respect to the Strategic Income Fund
and two late Form 4s with respect to the Multi-Sector High Income Fund.
DIRECTOR ATTENDANCE AT MEETINGS AND SHAREHOLDER COMMUNICATIONS
The Funds do not have a policy on director attendance at the Special and
Annual Meetings. For each Fund, no directors attended the 2007 annual meeting
of shareholders. Shareholders may send written communications to the Board of a
Fund or to an individual director by mailing such correspondence to the Fund's
Secretary, Charles D. Maxwell (addressed to 50 North Front Street, 21[st] Floor,
Memphis, Tennessee 38103). Such communications must be signed by the
shareholder and identify the number of shares held by the shareholder. Properly
submitted shareholder communications will, as appropriate, be forwarded to the
entire Board or to the individual director. Any shareholder proposal submitted
pursuant to Rule 14a-8 under the Exchange Act must continue to meet all the
requirements of Rule 14a-8. See "Shareholder Proposals" below.
SHAREHOLDER PROPOSALS
The Funds expect to hold their next annual meeting of shareholders in July
2009. The bylaws of each Fund require advance notice be given to the Fund in
the event a shareholder desires to nominate directors or make proposals to be
voted on at the Fund's annual meeting of shareholders. Nominations and
proposals of shareholders intended to be presented at the meeting must be
received by the Fund by January 31, 2009 and must satisfy the other requirements
of the federal securities laws. Timely submission does not guarantee that such
nominations or proposals will be included.
Notice of any such business must be in writing and sent to Charles D.
Maxwell, addressed c/o the applicable Fund, 50 North Front Street, 21[st] Floor,
Memphis, Tennessee 38103.
26
SHAREHOLDER REPORTS
EACH FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT ANNUAL
AND UNAUDITED SEMI-ANNUAL REPORT TO A SHAREHOLDER UPON REQUEST. TO REQUEST AN
ANNUAL OR SEMI-ANNUAL REPORT, CONTACT MAM AT 50 FRONT STREET, MEMPHIS, TENNESSEE
38103, OR CALL 1-800-564-2188. AS OF THE DATE OF THIS PROXY STATEMENT, THE AUDIT
OF THE MARCH 31, 2008 FINANCIAL STATEMENTS HAS NOT YET BEEN COMPLETED. IT IS
EXPECTED THAT A COPY OF THE 2008 ANNUAL REPORT FOR EACH FUND WILL BE MAILED TO
SHAREHOLDERS ON OR ABOUT MAY 28, 2008.
Shareholders of the Funds may have family members living in the same home
who also own shares of the Funds. In order to reduce the amount of duplicative
mail that is sent to homes with more than one Fund account, the Funds will,
until notified otherwise, send only one copy of shareholder reports and proxy
statements to each household address. If you would like to receive separate
documents for each account holder, please call 1-866-450-8470 or write to the
Funds at 50 North Front Street, Memphis, Tennessee 38103. If you currently
share a household with one or more other shareholders of the Funds and are
receiving duplicate copies of shareholder reports or proxy statements and would
prefer to receive a single copy of such documents, please call or write the
Funds at the phone number or address listed above.
OTHER BUSINESS
Management knows of no business to be presented at the Meetings other than
the matters set forth in this Proxy Statement, but should any other matter
requiring a vote of shareholders arise, the proxies will vote according to their
best judgment in the interest of the Funds.
May 20, 2008
Memphis, Tennessee
27
APPENDIX A
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FORM OF NEW ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT ("AGREEMENT") is made this _____ day of
__________ 2008, by and between RMK STRATEGIC INCOME FUND, INC. (the "FUND"), a
Maryland corporation, and HYPERION BROOKFIELD ASSET MANAGEMENT, INC. (the
"ADVISER"), a Delaware corporation.
WHEREAS, the Fund, a closed-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
ACT"), wishes to retain the Adviser to provide investment advisory services to
the Fund; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "ADVISERS ACT") and is willing
to furnish such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. APPOINTMENT OF THE ADVISER. The Fund hereby appoints the Adviser as
investment adviser for the Fund for the period, in the manner, and on the terms
set forth in this Agreement. The Adviser hereby accepts such appointment and
agrees during such period to render the services and to assume the obligations
herein set forth. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund. The Adviser may
delegate any or all of its responsibilities to one or more investment sub-
advisers, subject to the approval of (i) the Board of Directors (the "BOARD") of
the Fund, and (ii) the Fund's shareholders, to the extent required by law. Such
delegation shall not relieve the Adviser of its duties and responsibilities
hereunder.
2. INVESTMENT ADVISORY SERVICES. Subject to the supervision of the
Fund's Board, the Adviser shall provide the Fund with investment research,
advice, management and supervision and shall furnish a continuous investment
program for the Fund's portfolio of securities consistent with the Fund's
investment objectives, policies and limitations as set forth in the Fund's
initial registration statement, as amended or supplemented, the Fund's Articles
of Incorporation and Bylaws, the 1940 Act, the applicable rules and regulations
of the Securities and Exchange Commission (the "SEC") and other applicable
federal and state laws, and such other guidelines as the Board may reasonably
establish or approve. Without limiting the generality of the foregoing, the
Adviser shall: (i) obtain and evaluate such information and advice relating to
the economy, securities markets and securities as it deems necessary or useful
to discharge its duties hereunder; (ii) determine the securities to be
purchased, retained, sold, loaned or otherwise disposed by the Fund and what
portion of such assets will be invested or held uninvested as cash; (iii) place
orders pursuant to its investment determinations for the Fund either directly
with the issuer or with any broker or dealer; and (iv) take such other actions
and perform such other functions of management and supervision with respect to
the Fund as it deems necessary or appropriate or as may be directed by the Board
of the Fund.
3. PORTFOLIO TRANSACTIONS. In placing orders with brokers and dealers,
the Adviser shall attempt to obtain the best execution of the orders,
considering all the circumstances. For purposes of this Agreement, "best
execution" shall be interpreted in accordance with applicable law as it pertains
to the management of registered investment companies by registered investment
advisers.
(i) Subject to the appropriate policies and procedures approved by
the Board, the Adviser may, to the extent authorized by
Section 28(e) of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), use brokers or dealers who
provide the Fund or the Adviser with brokerage, research,
analysis, advice and similar services to execute transactions
on behalf of the Fund, and the Adviser may cause the Fund to
pay to those brokers or dealers in return for brokerage and
research services a higher commission than may be charged by
other brokers or dealers, subject to the Adviser determining
in good faith that such commission is reasonable in terms
either of the particular transaction or of the overall
responsibility of the Adviser to the Fund and its other
clients and that the total commissions paid by the Fund will
be reasonable in relation to the benefits to the Fund over the
long term. Subject to seeking best execution, the Board may
cause or direct the Adviser to effect transactions in
securities through brokers or dealers in a manner that will
help generate resources to pay the cost of certain expenses
that the Fund is required to pay or for which the Fund is
required to arrange payment.
(ii) The Adviser may, to the extent permitted by applicable laws
and regulations, aggregate securities to be sold or purchased
for the Fund and for its other clients in order to obtain best
execution. In that event, allocation of the securities
purchased or sold, as well as expenses incurred in the
transaction, will be made by the Adviser in accordance with
the 1940 Act and SEC or SEC staff guidance thereunder and in
the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to
its other clients.
(iii) The Adviser may use brokers or dealers who are affiliated with
the Adviser, provided that no such broker or dealer will be
utilized in any transaction in which such broker or dealer
acts as principal and the commissions, fees or other
remuneration received by such brokers or dealers is reasonable
and fair compared to the commissions, fees or other
remuneration paid to other brokers or dealers in connection
with comparable transactions involving similar securities
being purchased or sold during a comparable period of time.
(iv) The Adviser will periodically review the Fund's portfolio
transactions to ensure that such transactions are conducted in
accordance with this Section 3. The Adviser shall provide
such reports to the Board of Directors as it may reasonably
request with respect to the Fund's total brokerage and
transaction activities and the manner in which that business
was allocated.
The Fund hereby authorizes any entity or person associated with the
Adviser which is a member of a national securities exchange to effect any
transaction on the exchange for the account of the Fund which is permitted by
Section 11(a) of the Exchange Act and Rule 11a2-2(T) thereunder, and the Fund
hereby consents to the retention of compensation by such entity or person for
such transaction in accordance with Rule 11a2-2(T)(a)(2)(iv).
In the performance of its duties under this Agreement, the Adviser shall
at all times use all reasonable efforts to conform to, and act in accordance
with, any requirements imposed by (i) the provisions of the 1940 Act, the
Advisers Act, and of any rules or regulations of each in force thereunder;
(ii) any other applicable provision of law; (iii) the Articles of Incorporation
and By-Laws of the Fund, as such documents are amended from time to time;
(iv) the investment objectives, policies and restrictions applicable to the Fund
as set forth in the Fund's initial registration statement on Form N-2, as
amended or supplemented, and (v) any policies and determinations of the Board of
the Fund.
4. CODE OF ETHICS. The Adviser shall adopt a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and
Section 204A of the Investment Advisers Act of 1940 and shall provide the Fund
with a copy of the code of ethics and evidence of its adoption. Within
forty-five (45) days of the end of the last calendar quarter of each year while
this Agreement is in effect, an executive officer of the Adviser shall certify
to the Board that the Adviser has complied with the requirements of Rule 17j-1
and Section 204A during the previous year and that there has been no violation
of the Adviser's code of ethics or, if such a violation has occurred, that
appropriate action was taken in response to such violation. Upon the written
request of the Fund, the Adviser shall permit the Fund to examine the reports
required to be made to the Adviser by Rule 17j-1(c)(1).
5. BOOKS AND RECORDS. The Adviser shall oversee the maintenance of all
books and records with respect to the Fund's securities transactions and the
Fund's books of account in accordance with all applicable federal and state laws
and regulations. In compliance with the requirements of Rule 31a-3 under the
1940 Act, the Adviser hereby agrees that any records which it maintains for the
Fund are the property of the Fund and further agrees to surrender promptly to
the Fund any of such records upon the Fund's request. The Adviser further
agrees to arrange for the preservation of the records required to be maintained
by Rule 31a-1 under the 1940 Act for the periods prescribed by Rule 31a-2 under
the 1940 Act. The Adviser will be responsible for preserving the
confidentiality of information concerning the holdings, transactions, and
business activities of the Fund in conformity with the requirements of the 1940
Act, other applicable laws and regulations, and any policies that are approved
by the Board.
6. REPORTS. The Adviser shall furnish to or place at the disposal of
the Fund such information, evaluations, analyses and opinions formulated or
obtained by the Adviser in the discharge of its duties as the Fund may, from
time to time, reasonably request. The Fund shall furnish the Adviser with such
documents and information with regard to its affairs as the Adviser may, at any
time or from time to time, reasonably request in order to discharge its
obligations under this Agreement.
7. FUND PERSONNEL. The Adviser agrees to permit individuals who are
directors, officers or employees of the Adviser to serve (if duly appointed or
elected) as directors, officers or employees of the Fund, without remuneration
from or other cost to the Fund.
8. DISQUALIFICATION. The Adviser shall immediately notify the Board of
the occurrence of any event which would disqualify the Adviser from serving as
an investment adviser of an investment company pursuant to Section 9 of the 1940
Act or any other applicable statute or regulation.
9. EXPENSES. The Adviser shall be responsible for expenses incurred in
providing office space, equipment and personnel as may be necessary or
convenient to provide investment advisory services to the Fund, including
payment of all fees, expenses and salaries of the directors, officers or
employees of the Fund who are directors, officers or employees of the Adviser.
The Fund shall bear the expenses of its operation, except those specifically
allocated to the Adviser under this Agreement or under any separate agreement
between the Fund and the Adviser. Subject to any separate agreement or
arrangement between the Fund and the Adviser, the expenses hereby allocated to
the Fund, and not to the Adviser, include, but are not limited to:
(i) organizational expenses; (ii) legal and audit expenses; (iii) borrowing
expenses; (iv) interest; (v) taxes; (vi) governmental fees; (vii) fees,
voluntary assessments and other expenses incurred in connection with membership
in investment company organizations; (viii) the cost (including brokerage
commissions and issue or transfer taxes or other charges, if any) of securities
purchased or sold by the Fund and any losses incurred in connection therewith;
(ix) fees of custodians, transfer agents, registrars, proxy voting services,
pricing or valuation services or other agents or service providers; (x) expenses
of preparing share certificates; (xi) expenses relating to the redemption or
repurchase of shares; (xii) expenses of registering and qualifying shares for
sale under applicable federal or state law and maintaining such registrations
and qualifications; (xiii) expenses of preparing, setting in print, printing and
distributing prospectuses, proxy statements, reports, notices and dividends to
stockholders; (xiv) cost of stationery; (xv) costs of stockholders and other
meetings of the Fund, including any expenses relating to proxy solicitation and
vote tabulation; (xvi) compensation and expenses of the independent directors of
the Fund and officers of the Fund who are not officers, directors or employees
of the Adviser or its affiliates, if any; (xvii) the Fund's portion of premiums
of any fidelity bond and other insurance covering the Fund and its officers and
directors; (xviii) the fees and other expenses of listing and maintaining the
Fund's shares on the New York Stock Exchange or any other national stock
exchange; and (xix) any extraordinary expenses (including fees and disbursements
of counsel) incurred by the Fund.
10. COMPENSATION. As compensation for the services performed hereunder,
the Adviser shall receive from the Fund an advisory fee at the annual rate of
0.65% of the Fund's average daily total assets minus liabilities (other than the
aggregate indebtedness entered into for purposes of leverage) ("MANAGED
ASSETS"). This advisory fee shall be payable monthly as soon as practicable
after the last day of each month based on the average of the daily values placed
on the Managed Assets of the Fund as determined at the close of business on each
day throughout the month. The Managed Assets of the Fund will be valued as of
the close of regular trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time) on each business day throughout the month or, if the Fund
lawfully determines the value of its Managed Assets as of some other time on
each business day, as of such time. The first payment of such fee shall be made
as promptly as possible at the end of the month next succeeding the effective
date of this Agreement. In the event that the Adviser's right to such fee
commences on a date other than the first day of the month, the fee for such
month shall be prorated based on the average daily Managed Assets of the Fund in
that period from the date of commencement to the last day of the month. In the
event this Agreement terminates before the end of any month, the fee for such
month shall be prorated based on the average daily Managed Assets of the Fund in
that period from the first day of the month to the date of termination. If the
Fund determines the value of its Managed Assets more than once on any business
day, the last such determination on that day shall be deemed to be the sole
determination on that day. The value of the Managed Assets shall be determined
pursuant to the applicable provisions of the Fund's Articles of Incorporation,
its By-Laws and the 1940 Act. If, pursuant to such provisions, the
determination of the net asset value of the Fund is suspended for any particular
business day, then the value of the Managed Assets of the Fund on that day shall
be deemed to be the value of its Managed Assets as determined on the preceding
business day. If the determination of the net asset value of the Fund has been
suspended for more than one month, the Adviser's compensation payable at the end
of that month shall be computed on the basis of the value of the Managed Assets
of the Fund as last determined (whether during or prior to such month).
11. NON-EXCLUSIVE SERVICES. Nothing in this Agreement shall limit or
restrict the right of any director, officer, or employee of the Adviser who may
also be a director, officer, or employee of the Fund, to engage in any other
business or to devote his time and attention in part to the management or other
aspects of any other business, whether of a similar nature or a dissimilar
nature, nor to limit or restrict the right of the Adviser to engage in any other
business or to render services of any kind, including investment advisory and
management services, to any other corporation, firm, individual or association
provided that any such other services and activities do not, during the term of
this Agreement, interfere, in a material manner, with the Adviser's ability to
meet all of its obligations to the Fund hereunder. The Fund acknowledges that
the Adviser or one or more of its "affiliated persons" may have investment
responsibilities or render investment advice to or perform other investment
advisory services for other individuals or entities and that the Adviser, its
"affiliated persons" or any of its or their directors, officers, agents or
employees may buy, sell or trade in securities for its or their respective
accounts ("AFFILIATED ACCOUNTS"). Subject to the provisions of Section 3, the
Fund agrees that the Adviser or its "affiliated persons" may give advice or
exercise investment responsibility and take such other action with respect to
Affiliated Accounts which may differ from the advice given or the timing or
nature of action with respect to the Fund, provided that the Adviser acts in
good faith. The Fund further acknowledges that one or more of the Affiliated
Accounts may at any time hold, acquire, increase, decrease, dispose of or
otherwise deal with positions in investments in which the Fund may have an
interest. The Adviser shall have no obligation to recommend for the Fund a
position in any investment which an Affiliated Account may acquire, and the Fund
shall have no first refusal, co-investment or other rights in respect of any
such investment, either for the Fund or otherwise.
12. LIMITATION OF LIABILITY.
12.1 Neither the Adviser nor any director, officer or employee of
the Adviser performing services for the Fund at the direction or request of the
Adviser in connection with the Adviser's discharge of its obligations hereunder
shall be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with any matter to which this Agreement
relates; provided that nothing herein contained shall be construed (i) to
protect the Adviser against any liability to the Fund or its stockholders to
which the Adviser would otherwise be subject by reason of the Adviser's willful
misfeasance, bad faith, or gross negligence in the performance of the Adviser's
duties, or by reason of the Adviser's reckless disregard of its obligations and
duties under this Agreement ("DISABLING CONDUCT") or (ii) to protect any
director, officer or employee of the Adviser who is or was a director or officer
of the Fund against any liability to the Fund or its stockholders to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such person's office with the Fund.
12.2 The Fund will indemnify the Adviser against, and hold it
harmless from, any and all expenses (including reasonable counsel fees and
expenses) incurred investigating or defending against claims for losses or
liabilities described in Section 12.1 not resulting from negligence, disregard
of its obligations and duties under this Agreement or disabling conduct by the
Adviser. Indemnification shall be made only following: (i) a final decision on
the merits by a court or other body before whom the proceeding was brought that
the Adviser was not liable by reason of negligence, disregard of its obligations
and duties under this Agreement or disabling conduct or (ii) in the absence of
such a decision, a reasonable determination, based upon a review of the facts,
that the Adviser was not liable by reason of negligence, disregard of its
obligations and duties under this Agreement or disabling conduct by (a) the vote
of a majority of a quorum of directors of the Fund who are neither "interested
persons" of the Fund nor parties to the proceeding ("DISINTERESTED NON-PARTY
DIRECTORS") or (b) an independent legal counsel in a written opinion. The
Adviser shall be entitled to advances from the Fund for payment of the
reasonable expenses incurred by it in connection with the matter as to which it
is seeking indemnification hereunder in the manner and to the fullest extent
permissible under the Maryland General Corporation Law. The Adviser shall
provide to the Fund a written affirmation of its good faith belief that the
standard of conduct necessary for indemnification by the Fund has been met and a
written undertaking to repay any such advance if it should ultimately be
determined that the standard of conduct has not been met. In addition, at least
one of the following additional conditions shall be met: (a) the Adviser shall
provide security in form and amount acceptable to the Fund for its undertaking;
(b) the Fund is insured against losses arising by reason of the advance; or
(c) a majority of a quorum of the full Board, the members of which majority are
disinterested non-party directors, or independent legal counsel, in a written
opinion, shall have determined, based on a review of facts readily available to
the Fund at the time the advance is proposed to be made, that there is reason to
believe that the Adviser will ultimately be found to be entitled to
indemnification hereunder.
13. TERM OF AGREEMENT. The term of this Agreement shall begin on the
date first above written and, unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect for two years. Thereafter, this Agreement
shall continue in effect from year to year, subject to the termination
provisions and all other terms and conditions hereof, provided such continuance
is approved at least annually by vote of the holders of a majority of the
outstanding voting securities of the Fund or by the directors, provided that in
either event such continuance is also approved annually by the vote, cast in
person at a meeting called for the purpose of voting on such approval, of a
majority of the directors who are not parties to this Agreement or interested
persons of either party hereto ("INDEPENDENT DIRECTORS"); and provided further
that the Adviser shall not have notified the Fund in writing at least sixty (60)
days prior to the first expiration date hereof or at least sixty (60) days prior
to any expiration date hereof of any year thereafter that it does not desire
such continuation. The Adviser shall furnish to the Fund, promptly upon its
request, such information as may reasonably be necessary to evaluate the terms
of this Agreement or any extension, renewal or amendment thereof.
14. AMENDMENT OR ASSIGNMENT OF AGREEMENT. This Agreement may be amended
at any time, but only by written agreement between the Adviser and the Fund,
which amendment has been authorized by the Board, including the vote or written
consent of a majority of the Independent Directors and, where required by the
1940 Act, the shareholders of the Fund in the manner required by the 1940 Act
and the rules thereunder. This Agreement shall terminate automatically and
immediately in the event of its assignment. The Adviser shall notify the Fund
in writing in advance of any proposed change of "control" to enable the Fund to
take the steps necessary to enter into a new advisory agreement, if necessary.
15. TERMINATION OF AGREEMENT. This Agreement may be terminated at any
time by either party hereto, without the payment of any penalty, upon sixty (60)
days' prior written notice to the other party; provided that in the case of
termination by the Fund, such action shall have been authorized (i) by
resolution of the directors, including the vote or written consent of a majority
of the Independent Directors or (ii) by vote of a majority of the outstanding
voting securities of the Fund.
16. INTERPRETATION AND DEFINITION OF TERMS. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretation thereof, if any, by the United States courts or, in the absence
of any controlling decision of any court, by rules, regulations or orders of the
SEC validly issued pursuant to the 1940 Act. Where the effect of a requirement
of the 1940 Act reflected in any provision of this Agreement is altered by a
rule, regulation or order of the SEC, whether of special or general application,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Specifically, the terms "AFFILIATED PERSON," "ASSIGNMENT,"
"CONTROL," "INTERESTED PERSON" and "MAJORITY OF THE OUTSTANDING VOTING
SECURITIES" shall have the meanings given to them by Section 2(a) of the 1940
Act, subject to such exemptions as may be granted by the Securities and Exchange
Commission by any rule, regulation or order.
17. GOVERNING LAW. Except insofar as the 1940 Act or other federal laws
and regulations may be controlling, this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York.
18. NOTICE. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed postage prepaid to the other party to the Fund
(attn: [Secretary]) or the Adviser (attn: [___________]) at their respective
principal places of business (or to such other addresses or contacts as shall be
designated by the Fund or the Adviser in a written notice to the other party).
19. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
20. SEVERABILITY AND SUCCESSORS. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
21. FORCE MAJEURE. The Adviser shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including, but not
limited to, acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Adviser shall take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
22. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior amendments
and understandings relating to the subject matter hereof.
IN WITNESS WHEREOF the parties have caused this instrument to be signed on
their behalf by their respective officers thereunto duly authorized all as of
the date first written above.
RMK STRATEGIC INCOME FUND, INC.
By:
----------------------------------------
Name:
Title:
HYPERION BROOKFIELD ASSET MANAGEMENT, INC.
By:
----------------------------------------
Name:
Title:
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION
IN THE ENCLOSED ENVELOPE.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- --------------------------------------------------------------------------------
PROXY -- RMK STRATEGIC INCOME FUND, INC.
- --------------------------------------------------------------------------------
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS - JULY 11, 2008 AT 11:00 A.M.
CENTRAL TIME
REGIONS FINANCIAL CORP.
7130 GOODLETT FARMS PARKWAY
CORDOVA, TENNESSEE 38016
PROXY SOLICITED BY BOARD OF DIRECTORS OF RMK STRATEGIC INCOME FUND, INC.
The undersigned hereby appoints as proxies Charles D. Maxwell and J. Thompson
Weller, and each of them, with full power of substitution and revocation to
represent and vote all of the undersigned's shares of RMK Strategic Income Fund,
Inc. held on the record date, with all the powers which the undersigned would
possess if personally present, at the Special Meeting of Shareholders to be held
on July 11, 2008 at 11:00 a.m. Central Time and any postponement or adjournment
thereof (the "Meeting").
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS INSTRUCTED BY THE SHAREHOLDER.
UNLESS INDICATED TO THE CONTRARY, THIS PROXY SHALL BE DEEMED TO GRANT AUTHORITY
TO VOTE "FOR" THE ELECTION OF DIRECTORS, WITH DISCRETIONARY POWER TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
YOUR VOTE IS IMPORTANT. PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
(CONTINUED AND TO BE VOTED ON REVERSE SIDE.)
RMK Strategic Income Fund
Using a BLACK INK pen, mark your votes with an X as shown in
this example. Please do not write outside the designated areas. [X]
- --------------------------------------------------------------------------------
SPECIAL MEETING PROXY CARD
- --------------------------------------------------------------------------------
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION
IN THE ENCLOSED ENVELOPE.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
A PROPOSAL -- THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.
1. Approval of a new investment advisory agreement between FOR AGAINST ABSTAIN
Hyperion Brookfield Asset Management, Inc. and RMK [ ] [ ] [ ]
Strategic Income Fund, Inc.
B NON-VOTING ITEMS
CHANGE OF ADDRESS -- Please print new address below.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
C AUTHORIZED SIGNATURES -- THIS SECTION MUST BE COMPLETED FOR YOUR VOTE TO BE
COUNTED. -- DATE AND SIGN BELOW
NOTE: Please sign your name EXACTLY as your name appears on this proxy. All
joint holders must sign. When signing as attorney, trustee, executor,
administrator, custodian or guardian, please provide your FULL title. If
stockholder is a corporation or partnership, please sign in full corporate or
partnership name by authorized person indicating title.
Date (mm/dd/yyyy) -- Signature 1 -- Please keep Signature 2 -- Please keep
Please print date below. signature within the box. signature within the box.
- ------------------------ -------------------------- --------------------------
/ /
- ------------------------ -------------------------- --------------------------
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION
IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
PROXY -- RMK STRATEGIC INCOME FUND, INC.
- --------------------------------------------------------------------------------
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS - JULY 11, 2008 AT 11:00 A.M.
CENTRAL TIME
REGIONS FINANCIAL CORP.
7130 GOODLETT FARMS PARKWAY
CORDOVA, TENNESSEE 38016
PROXY SOLICITED BY BOARD OF DIRECTORS OF RMK STRATEGIC INCOME FUND, INC.
The undersigned hereby appoints as proxies Charles D. Maxwell and J. Thompson
Weller, and each of them, with full power of substitution and revocation to
represent and vote all of the undersigned's shares of RMK Strategic Income Fund,
Inc. held on the record date, with all the powers which the undersigned would
possess if personally present, at the Annual Meeting of Shareholders to be held
on July 11, 2008 at 11:00 a.m. Central Time and any postponement or adjournment
thereof (the "Meeting").
Shares represented by this proxy will be voted as instructed by the shareholder.
Unless indicated to the contrary, this proxy shall be deemed to grant authority
to vote "FOR" the election of Directors, with discretionary power to vote upon
such other business as may properly come before the Meeting.
YOUR VOTE IS IMPORTANT. PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
(CONTINUED AND TO BE VOTED ON REVERSE SIDE.)
RMK Strategic Income Fund, Inc.
Using a BLACK INK pen, mark your votes with an X as shown in
this example. Please do not write outside the designated areas. [X]
- --------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD
- --------------------------------------------------------------------------------
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION
IN THE ENCLOSED ENVELOPE.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
A PROPOSAL -- THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE LISTED NOMINEES.
1. Election of Class I Directors: For Withhold For Withhold
01 - Robert F. Birch [ ] [ ] 02 - Stuart A. McFarland [ ] [ ]
2. Election of Class II Director: For Withhold
01 - Rodman L. Drake [ ] [ ]
3. Election of Class III Directors: For Withhold For Withhold
01 - Louis P. Salvatore [ ] [ ] 02 - Clifford E. Lai [ ] [ ]
B NON-VOTING ITEMS
CHANGE OF ADDRESS -- Please print new address below.
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C AUTHORIZED SIGNATURES -- THIS SECTION MUST BE COMPLETED FOR YOUR VOTE TO BE
COUNTED. -- DATE AND SIGN BELOW
NOTE: Please sign your name EXACTLY as your name appears on this proxy. All
joint holders must sign. When signing as attorney, trustee, executor,
administrator, custodian or guardian, please provide your FULL title. If
stockholder is a corporation or partnership, please sign in full corporate or
partnership name by authorized person indicating title.
Date (mm/dd/yyyy) -- Signature 1 -- Please keep Signature 2 -- Please keep
Please print date below. signature within the box. signature within the box.
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