SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN A PROXY STATEMENT
SCHEDULE 14A INFORMATION
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 Rule 14a-11(c) or Rule 14a-12
Prospect Street High Income Portfolio 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:
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(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):
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[ ] Fee paid previously with preliminary materials.
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[ ] 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
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number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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PROSPECT STREET HIGH INCOME PORTFOLIO INC.
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
January 6, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Prospect Street High Income Portfolio Inc. (the "Fund") to be held at 60 State
Street, 37th Floor, Boston, Massachusetts 02109, on March 12, 1999 at 10:00
a.m. You will have an opportunity to hear a report on the Fund and to discuss
other matters of interest to you as a stockholder.
We hope that you will be able to attend the meeting. Whether or not you
plan to attend, please complete, date, sign and mail the enclosed proxy card
to assure that your shares are represented at the meeting.
Sincerely,
/s/ Richard E. Omohundro, Jr.
RICHARD E. OMOHUNDRO, JR.
President
PROSPECT STREET HIGH INCOME PORTFOLIO INC.
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 12, 1999
------------------------------
The Annual Meeting of Stockholders (the "Annual Meeting") of Prospect
Street High Income Portfolio Inc., a Maryland corporation (the "Fund"), will
be held at 60 State Street, 37th Floor, Boston, Massachusetts 02109, on March
12, 1999 at 10:00 a.m., for the following purposes:
To elect seven Directors of the Fund, to hold office until the next
annual meeting of stockholders and until their successors shall have been
duly elected and qualified;
To approve a new Advisory Agreement which will increase the annual
advisory fee to 0.70% of the Fund's average annual net assets up to and
including $200,000,000 and 0.65% of the excess of such managed assets over
$200,000,000;
To ratify the selection of Arthur Andersen LLP as independent public
accountants of the Fund for the fiscal year ending October 31, 1999; and
To transact such other business as may properly come before the Annual
Meeting and any adjournment thereof. The matters referred to above may be
acted upon at the Annual Meeting or any adjournment thereof.
The close of business on December 29, 1998 has been fixed as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the Annual Meeting and any adjournment thereof.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR HOLDINGS IN THE
FUND. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE
COMPLETE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU DESIRE TO VOTE IN PERSON AT THE MEETING, YOU MAY REVOKE YOUR PROXY.
By Order of the Directors
KAREN J. THELEN
Secretary
January 6, 1999
Boston, Massachusetts
PROSPECT STREET HIGH INCOME PORTFOLIO INC.
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MARCH 12, 1999
------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Prospect Street High Income
Portfolio Inc., a Maryland corporation (the "Fund"), for use at the Fund's
Annual Meeting of Stockholders (the "Annual Meeting") to be held at 60 State
Street, 37th Floor, Boston, Massachusetts 02109, on March 12, 1999 at 10:00
a.m., and at any and all adjournments thereof, for the purposes set forth in
the accompanying Notice of Annual Meeting dated January 6, 1999. The Fund is a
registered investment company under the Investment Company Act of 1940, as
amended (the "1940 Act").
This Proxy Statement and the accompanying Notice of Annual Meeting and
form of proxy will be first sent to stockholders on or about January 6, 1999.
The Board of Directors has fixed the close of business on December 29, 1998 as
the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting. As of the record date, 19,821,334 shares of
the Fund's Common Stock, $.03 par value per share (the "Common Stock"), were
issued and outstanding. Holders of Common Stock have one vote per share on all
matters submitted to stockholders. To the Fund's knowledge, no person
beneficially owned shares of the Fund representing more than five percent of
the total voting power of all outstanding shares at December 29, 1998. The
Board of Directors is authorized by the Fund's Articles of Incorporation to
issue preferred stock in one or more series without shareholder approval, but
no such class is currently outstanding.
Shares of Common Stock represented by properly executed proxies with
respect to which a vote is withheld, an abstention is indicated, or a broker
does not vote will be treated as shares that are present and entitled to vote
for purposes of determining a quorum. However, under applicable Maryland law,
abstentions and broker non-votes will not be treated as having been voted for
purposes of determining the approval of Proposal 2 and thus will have the
effect of a vote against such Proposal.
If the accompanying form of proxy is properly executed and returned in
time to be voted at the Annual Meeting, the shares covered thereby will be
voted in accordance with the instructions marked thereon by the stockholder.
Executed proxies that are unmarked will be voted (1) FOR the election of the
applicable nominees named herein as Directors of the Fund, (2) FOR approval of
a proposal to adopt a new Advisory Agreement which would amend the current
0.50% to 0.65% tiered advisory fee structure and would increase the annual
advisory fee to 0.70% of the Fund's average annual net assets up to and
including $200,000,000 and 0.65% of the excess of such managed assets over
$200,000,000, (3) FOR the proposal to ratify the selection of Arthur Andersen
LLP as independent public accountants of the Fund for the fiscal year ending
October 31, 1999, and (4) in the discretion of the persons named as proxies in
connection with any other matter which may properly come before the Annual
Meeting or any adjournment thereof. The Board of Directors does not know of
any matter to be considered at the Annual Meeting other than the matters
referred to above. A stockholder may revoke his or her proxy prior to its use
by appearing at the Annual Meeting and voting in person, by giving written
notice of such revocation to the Secretary of the Fund or by returning a
subsequently dated proxy.
Shares of Common Stock representing a majority of the votes entitled to be
cast shall constitute a quorum at the Annual Meeting. In the event a quorum is
not present at the Annual Meeting or in the event a quorum is present at the
Annual Meeting but sufficient votes to approve any of the proposals are not
received, the persons named as proxies may propose one or more adjournments of
the Annual Meeting to permit further solicitation of proxies. A stockholder
vote may be taken on one or more of the proposals in this Proxy Statement
prior to such adjournment if sufficient votes have been received and such vote
is otherwise appropriate. Any such adjournment will require the affirmative
vote of a majority of those shares present at the Annual Meeting in person or
by proxy.
In addition to solicitation of proxies by mail, officers of the Fund and
officers and regular employees of Prospect Street Investment Management Co.,
Inc. (the "Manager"), affiliates of the Manager or other representatives of
the Fund may also solicit proxies by telephone or telegraph or in person. The
Fund has also retained Corporate Investor Communications, Inc., a proxy
solicitation firm to assist in the solicitation of proxies. The costs of
retaining such firm, which the Fund does not anticipate will exceed $20,000,
will depend upon the amount and type of services rendered. The costs of proxy
solicitation and expenses incurred in connection with preparing this Proxy
Statement and its enclosures will be paid by the Fund.
THE INVESTMENT ADVISER
Prospect Street Investment Management Co., Inc., with its principal office
at 60 State Street, Boston, MA 02109, has served as the investment adviser to
the Fund since its inception in November 1988.
PROPOSAL 1
ELECTION OF DIRECTORS
The stockholders of the Fund are being asked to elect the following seven
nominees as Directors of the Fund, to serve as such until the next annual
meeting of the Fund's stockholders and until their successors shall have been
duly elected and qualified. All nominees named below are presently serving as
Directors of the Fund. All shares represented by valid proxies will be voted
in the election of Directors for the applicable nominees named below, unless
authority to vote for a particular nominee is withheld. Each nominee has
agreed to serve as a Director if elected. If any such nominee is not available
for election at the time of the Annual Meeting, the persons named as proxies
will vote for such substitute nominee as the Board of Directors may recommend.
In accordance with resolutions adopted by the Board of Directors, and
under the terms of the Fund's Articles of Amendment and Restatement (the
"Articles of Incorporation") and the Fund's By-laws, as amended, the holders
of the Fund's Common Stock are to elect seven Directors of the Fund.
The nominees for election to the Board of Directors are as follows:
NUMBER OF
SHARES OF
COMMON STOCK
BENEFICIALLY
OWNED AT
POSITIONS DIRECTOR DECEMBER 29,
NAME WITH FUND AGE SINCE 1998(1)(2)
- ---- --------- --- ----- ----------
COMMON STOCK NOMINEES
- ---------------------
Richard E. Omohundro, Jr.* President and Director 58 November, 1988 1,000(3)
John A. Frabotta* Vice President, 56 November, 1988 2,769(3)
Treasurer, and
Director
John S. Albanese Director 48 November, 1989 -0-
C. William Carey Director 61 November, 1988 9,012
Joseph G. Cote* Director 56 November, 1988
through
November, 1993;
March, 1996 -0-(3)
Harlan D. Platt Director 48 November, 1988 -0-(4)
Christopher E. Roshier Director 52 November, 1993 -0-
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* These Directors are deemed to be "interested persons" of the Fund under the 1940 Act. Messrs. Omohundro and Cote are
Co-Presidents of the Manager. Mr. Frabotta is a Vice President of the Manager.
(1) The amounts shown are based on information furnished by the nominee. Except as otherwise indicated, each person has sole
voting and investment power with respect to the shares indicated. Fractional shares are rounded off to the nearest whole
share.
(2) No Director is the beneficial owner of more than 1% of the Common Stock outstanding.
(3) Does not include an additional 30,451 shares of Common Stock owned by the Manager.
(4) Does not include 2,372 shares of Common Stock owned by Mr. Platt's wife, as to which Mr. Platt disclaims beneficial
ownership.
As of December 29, 1998, all of the officers and Directors of the Fund,
including the Manager, as a group beneficially owned 43,232 shares of Common
Stock, or less than 1% of the outstanding shares of Common Stock.
COMMON STOCK NOMINEES
Richard E. Omohundro, Jr. has been President or Co-President of the
Manager since July 1988 and has been President of the Fund since its
inception. Previously he was a Managing Director of Merrill Lynch from 1983 to
1988 and Co-Manager of the Merrill Lynch High Yield Bond Group from 1978
through 1987. Mr. Omohundro is also President and Chief Executive Officer of
Prospect Street Strategic Management Co., Inc.
John A. Frabotta has been Vice President of the Manager since June 1988,
Co-Portfolio Manager of the Fund since October 1989 and Portfolio Manager
since October 1990. Previously, Mr. Frabotta was a Vice President of Merrill
Lynch Pierce Fenner & Smith ("Merrill Lynch") from 1979 through June 1988.
John S. Albanese has been Senior Counsel to Washington Headquarters
Services, a Department of Defense Agency located at the Pentagon since 1992. A
Lieutenant Colonel in the United States Army Reserve, he served on active duty
from 1977 until 1992 in various positions such as: Attorney-Adviser and
Litigation Attorney in the Office of the Judge Advocate General; Legal Counsel
to the U.S. Army Information Systems Selection and Acquisition Agency; and
Legal Adviser to the Defense Attache for the American Embassy in Paris,
France.
C. William Carey was Chairman and Chief Executive Officer of Town &
Country Corporation from 1965 until December 1996 and has been the President
of such company since September 1998. Mr. Carey has been President of Carey
Associates, Inc. since January 1998.
Joseph G. Cote has been a shareholder of the Manager since 1989.
Previously, he was Co-President of the Manager from August 1995 to February
1998 and from February 1989 to November 1993. From 1978 to 1988, Mr. Cote was
a Managing Director of Merrill Lynch and Co-Manager of the Merrill Lynch High
Yield Bond Group.
Harlan D. Platt is a Professor of Finance and Insurance, and has been at
Northeastern University, College of Business Administration, since 1981 and
has been a Director of VSI Enterprises, Inc. (a manufacturer of video
conferencing equipment) (NASDAQ) since September 1998.
Christopher E. Roshier, a citizen of the United Kingdom, has been a
Corporate Finance Director of European Capital Company Limited in London since
1990 and is a Director of a number of other public and private companies in
the U.K.
During the fiscal year ended October 31, 1998, the Directors of the Fund
met five times in person and four times by telephone. During such year each
incumbent Director (either in person or by telephone) attended all of the
meetings of the Board. The Board of Directors has one committee, the Audit
Committee. The Audit Committee is responsible for conferring with the Fund's
independent accountants, reviewing the scope and procedures of the year-end
audit, reviewing annual financial statements and recommending the selection of
the Fund's independent accountants. In addition, the Audit Committee may
address questions arising with respect to the valuation of certain securities
in the Fund's portfolio. The Audit Committee is comprised of Messrs. Carey,
Albanese and Platt. The Audit Committee met once in fiscal 1998.
REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS
The executive officers of the Fund and those of its Directors who are
"interested persons" of the Fund receive no direct remuneration from the Fund.
Those Directors who are not interested persons are compensated at the rate
of $10,000 annually, plus $2,000 per Directors' meeting attended in person or
$1,000 per Directors' meeting attended by telephone, and are reimbursed for
actual out-of-pocket expenses relating to attendance at such meetings. In
addition, the members of the Fund's Audit Committee, which consists of certain
of the Fund's non-interested Directors, receive $1,000 for each Audit
Committee meeting attended, together with actual out-of-pocket expenses
relating to attendance at such meetings. During the fiscal year ended October
31, 1998, Directors who were not interested persons of the Fund earned fees
aggregating $91,000.
The following table summarizes the compensation paid to the Directors and
Officers of the Fund for the fiscal year ended October 31, 1998.
AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL
COMPENSATION BENEFITS ACCRUED AS PART BENEFITS UPON COMPENSATION
NAME OF DIRECTOR OR OFFICER FROM FUND OF FUND EXPENSES RETIREMENT FROM FUND
- --------------------------- --------- ---------------- ---------- ---------
Richard E. Omohundro, Jr. none none none none
Harlan D. Platt $24,000 none none $24,000
C. William Carey $23,000 none none $23,000
Christopher E. Roshier $21,000 none none $21,000
John S. Albanese $23,000 none none $23,000
John A. Frabotta none none none none
Joseph G. Cote none none none none
SHARE OWNERSHIP AND CERTAIN BENEFICIAL OWNERS
As far as is known to the Fund, no person owned beneficially five percent
or more of the outstanding shares of Common Stock of the Fund on December 29,
1998. The Depository Trust Company ("DTC") holds of record 90% of the
outstanding shares of Common Stock. As far as is known to the Fund, no person
other than DTC, owned of record or beneficially, shares of the Fund
representing more than five percent of the voting power of the Fund's
outstanding shares. The Manager of the Fund beneficially owns 30,451 shares of
Common Stock.
REQUIRED VOTE
The election of each of the nominees for Director requires the affirmative
vote of the holders of a plurality of the common stock of the Fund present and
voting at the Annual Meeting. Pursuant to the Articles of Incorporation,
holders of the Common Stock have voting rights of one vote per share.
Abstentions will not be counted as votes cast and will have no effect on the
result of the vote, although abstentions will count towards the presence of a
quorum. Under the Articles of Incorporation and the 1940 Act, the holders of
the Common Stock are entitled to elect seven Directors (at least four of whom
are not "interested persons" as defined in the 1940 Act).
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION
OF THE SEVEN NOMINEES TO THE FUND'S BOARD OF DIRECTORS.
PROPOSAL 2
APPROVAL OF NEW ADVISORY AGREEMENT
DESCRIPTION OF PROPOSED NEW ADVISORY AGREEMENT
In late November 1998, the Manager requested an increase in the advisory
fee and the Board members reviewed various factors pertaining to such request.
Accordingly, on December 14, 1998, the Noninterested Directors and the full
Board of Directors, further considered all of the information presented by the
Adviser and approved (subject to stockholder approval) a new Advisory
Agreement under which the annual fee payable monthly to the Manager would be
increased to 0.70% (on an annual basis) of the average weekly value of the
total assets of the Fund ("Managed Assets"), less accrued and unpaid dividends
on any outstanding shares of preferred stock and less accrued liabilities
(excluding the principal amount of the Fund's "senior securities representing
indebtedness" as defined in the 1940 Act, not to exceed $75 million (the
"Principal Debt Exclusion"), and excluding the liquidation preference of any
outstanding shares of preferred stock or other senior securities) up to and
including $200,000,000 of such managed assets and an annual rate of 0.65% of
the excess of such managed assets over $200,000,000. Currently, the Principal
Debt Exclusion is $50 million and the Manager receives a monthly advisory fee
equal to 0.65% up to and including $175,000,000 of managed assets, 0.55% on
the next $50,000,000 of managed assets and 0.50% of the excess of managed
assets over $225,000,000. As so calculated, such Managed Assets are
hereinafter referred to as the "average net assets" of the Fund.
There are no other changes being proposed to be made in the existing
Advisory Agreement and accordingly the new Agreement will otherwise be
virtually identical to the existing one. The proposed $25 million increase in
the Principal Debt Exclusion will have no immediate effect on the actual
advisory fee since the maximum amount of senior indebtedness under an existing
revolving credit agreement is currently $50 million, of which $40 million is
outstanding.
In requesting a fee increase, the Manager referred the Board to, among
other things, the increasing research and analysis burden resulting from the
growth of the high yield market from $250 Billion on January 1, 1994 to
approximately $600 Billion as of June 30, 1998, and the increased
administrative costs and increased complexity of administering the Fund.
According to "1998 Leveraged Finance Annual Review" of Donaldson, Lufkin &
Jenrette, Inc., the "high-yield" new issue market has increased from
approximately $50 Billion in calendar 1993 to $126 Billion in 1997.
According to current information derived by the Manager from Lipper
Analytical Services regarding closed-end investment companies, the current
advisory fee is lower than the average charged by other leveraged closed-end
funds which invest primarily in high yield securities as does the Fund. The
proposed fee will be closer to the approximate 0.71% average of the Fund's
peer group.
The table below compares actual fees incurred under the existing Advisory
Agreement with the fees that would have been payable under the proposed
Agreement during the last fiscal year of the Fund.
ADVISORY FEES FEES PAYABLE UNDER
ACTUALLY THE PROPOSED
YEAR ENDED INCURRED(A) AGREEMENT (B) $CHANGE(C) %CHANGE
- ---------- ----------- ------------- ---------- -------
October 31, 1998 $1,582,842 $1,783,945 $201,103 12.7%
(a) Calculated pursuant to the present fee schedule as described above.
(b) Calculated pursuant to the proposed fee schedule as described above.
(c) Equals the difference between fees payable under the proposed Agreement and advisory fees actually incurred.
COMPARATIVE FEE TABLE
The table below compares the ratio of management fee, other expenses and
total operating expenses to the average net assets of the Fund with respect to
the current fee and proposed fee. The table assumes average net assets for the
Fund of $225,000,000 and senior borrowing of $40,000,000:
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) CURRENT FEE PROPOSED FEE
- --------------------------------------- ----------- ------------
Management Fee 0.61% 0.69%
Interest Payments on Borrowed Funds 0.96% 0.96%
Other Expenses 0.64% 0.64%
---- ----
Total Fund Operating Expenses 2.11% 2.19%
---- ----
The following example illustrates the expenses on a $1,000 investment
under the existing and proposed fee schedule, and the total Fund operating
expenses stated above, assuming (1) a 5% annual return and (2) $225,000,000 of
average net assets in the Fund upon which the advisory fee is calculated.
AGGREGATE FEE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------- ------ ------- ------- --------
Existing $22 $68 $117 $251
Proposed $23 $71 $121 $260
The purpose of this example and the foregoing Comparative Fee Table is to
assist investors in understanding the various costs and expenses of investing
in shares of the Fund. The example above should not be considered a
representation of past or future expenses of the Fund. Actual expenses may
vary from year to year and may be higher or lower than those shown above.
The Fund's audited ratio of operating expenses (exclusive of interest) to
average net assets for the year ended October 31, 1998 was 1.20% and if the
proposed Agreement had been in effect such ratio would have been 1.28%. The
audited ratio of operating expenses (inclusive of interest) to average net
assets for the year ended October 31, 1998 was 2.18% and if the proposed
Agreement had been in effect such ratio would have been 2.26%. The average
ratio of operating expenses (inclusive of interest) to average net assets of
all other leveraged "high yield" closed-end funds was 2.04% during the last
fiscal year of such funds according to information derived by the Manager from
Lipper Analytical Services, Inc.
The Board of Directors has determined that the compensation to be paid to
the Manager under the proposed Agreement is fair and reasonable. In approving
the proposed Agreement and recommending its approval by stockholders, the
Directors of the Fund, including the Noninterested Directors, considered the
best interests of stockholders of the Fund and took into account all such
factors they deemed relevant. The factors considered by the Noninterested
Directors included the nature, quality and extent of the services furnished by
the Manager to the Fund since its inception, and particularly the last five
fiscal years; the necessity of the Manager maintaining and enhancing its
ability to retain and attract capable personnel to serve the Fund; the
experience of the Manager in "high-yield" investing and particularly in
managing the Fund; the effect of the proposed investment advisory fee increase
on the expense ratio of the Fund; comparative data as to investment
performance, advisory fees and expense ratios, particularly fee and expense
ratios of funds with similar investment objectives; the advantages and
possible disadvantages to the Fund of having an adviser which does not
currently serve other investment companies; the continuance of appropriate
incentives to assure that the Manager will continue to furnish high quality
services to the Fund; and the advisability of modifying the current tiered fee
structure under which the fee would be reduced upon reaching certain asset
levels. Of the factors set forth above, comparative data as to investment
performance was the primary factor and the other factors were considered
relatively equally by the Board of Directors.
Until such time as the new Advisory Agreement has been approved by
stockholders, the fee payable to the Manager will continue as described above.
The present Advisory Agreement will continue in effect until February 28, 2000
if this Proposal No.2 is not adopted. The present Advisory agreement was last
approved by the Directors on December 14, 1998 and by the stockholders on
March 1, 1994. In the event of the approval of the proposed new Agreement by
the stockholders, such new Agreement will be effective on March 12, 1999 and
will have a two-year term expiring on March 11, 2001.
The Board of Directors recommends that stockholders vote FOR approval of
the New Advisory Agreement.
Under both the existing and the proposed Advisory Agreements the Fund
bears all costs of its operation other than those incurred by the Manager
under the Advisory Agreement. In particular, the Fund pays investment advisory
fees, fees and expenses associated with the Fund's administration, record
keeping and accounting, fees and expenses for the custodian of the Fund's
assets and the legal, accounting and auditing fees, taxes, expenses of
preparing prospectuses and shareholder reports, registration fees and
expenses, fees and expenses for the transfer and dividend disbursing agent,
the compensation and expenses of the Directors who are not otherwise employed
by or affiliated with the Manager or any of its affiliates, and any
extraordinary expenses. The Manager will reimburse the Fund for any expenses
(excluding brokerage commissions, interest, taxes and litigation expenses)
paid or incurred by the Fund in any year in excess of the most restrictive
expense limitation, which is imposed by any state and to which the Fund is
then subject, if any. The Fund is not known to be subject to any state expense
limitations. Under both Advisory Agreements, the Manager provides the Fund
with office space, facilities and business equipment and provides the services
of executive and clerical personnel for administering certain of the other
affairs of the Fund. The Manager compensates Directors of the Fund if such
persons are employed by the Manager or its affiliates.
The proposed Advisory Agreement will remain in effect until March 11, 2001
and will continue in effect from year to year (as would the existing
Agreement) as long as it is approved at least annually (i) by either the Board
of Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) and (ii) in either case by
a majority of the Directors of the Fund who are not parties to the Advisory
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. Either the current or the
proposed Advisory Agreement may be terminated at any time, without payment of
any penalty, by vote of the Board of Directors, by vote of the majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act and as
further described below), or by the Manager, in each case on not more than
sixty (60) days' nor less than thirty (30) days' prior written notice, and
will terminate automatically in the event of its assignment.
Under the 1940 Act, approval of the new Advisory Agreement (this Proposal
No. 2) will require a vote of a majority of the outstanding voting securities
of the Fund (currently only Common Stock), which means the lesser of either
(a) the vote of 67% or more of the shares of the applicable class or classes
present at the relevant meeting, if the holders of more than 50% of the
outstanding shares of the applicable class or classes are present or
represented by proxy, or (b) the vote of more than 50% of the outstanding
shares of the applicable class or classes. UNDER APPLICABLE MARYLAND LAW, IN
DETERMINING WHETHER THIS PROPOSAL NO. 2 HAS RECEIVED THE REQUISITE NUMBER OF
AFFIRMATIVE VOTES, ABSTENTIONS AND BROKER NON-VOTES WILL NOT BE COUNTED AND
THUS WILL HAVE THE EFFECT OF A VOTE AGAINST SUCH PROPOSALS.
Based upon information furnished by the Manager, the Board of Directors is
not aware of any financial condition of the Manager which is reasonably likely
to impair its ability to perform its commitments under the New Advisory
Agreement.
The Manager is registered under the Investment Advisers Act of 1940. The
following table sets forth the name, title and principal occupation of each
director and executive officer of the Manager.
NAME AND ADDRESS TITLE PRINCIPAL OCCUPATION
---------------- ----- --------------------
Richard E. Omohundro, Jr.* Co-President President of the Fund, President of the Manager, and Co-President and
60 State Street Chief Executive Officer of Prospect Street Strategic Debt Management
Boston, MA 02109 Co., Inc.
Joseph G. Cote* Co-President Shareholder of Manager and former Co-President of Manager and certain
19 Mallard Drive affiliates.
Lloyd Harbor, NY 11743
Karen J. Thelen Vice President Secretary of the Fund and Vice President of the Manager.
60 State Street
Boston, MA 02109
John A. Frabotta* Vice President Vice President, Treasurer, Chief Investment Officer and Portfolio
60 State Street Manager of the Fund and Vice President and Secretary of the Manager.
Boston, MA 02109
William O'Connell Controller Controller of the Manager and an officer of various companies
60 State Street affiliated with the Manager.
Boston, MA 02109
- ----------
* Messrs. Omohundro, Cote and Frabotta are the controlling shareholders of the Manager and may be deemed to be the "Parents"
(as such term is defined in Item 22 of Rule 14a-101 of the Securities Exchange Act of 1934, as amended) of the Manager.
On November 1, 1998, the Fund's portfolio manager, John A. Frabotta, a
Director of the Fund, purchased an additional 13.33% of the Manager's capital
stock to bring his ownership of the Manager to 33 1/3%. The shares were sold
for $20,000 pursuant to a promissory note payable on December 31, 2002,
bearing interest at 6% per annum.
The Fund did not effect any transactions through affiliated brokerage
firms during the fiscal year ended October 31, 1998.
If adopted, the New Advisory Agreement will be materially the same as the
existing advisory agreement, except that Section 4 of the Advisory Agreement
will read in its entirety as follows:
"ADVISORY FEE
For the services and facilities to be provided by the Manager as set
forth in paragraph 2 hereof, the Fund will pay to the Manager as full
compensation therefor a fee at an annual rate of 0.70% of the Fund's net
assets up to and including $200 million and (b) 0.65% of the excess of
such managed assets over $200,000,000. For purposes hereof, net assets
shall mean (a) the average weekly value of the total assets of the Fund,
minus (b)(i) accrued liabilities of the fund (other than the principal
amount of the Fund's "senior securities representing indebtedness" (as
defined in the 1940 Act), not to exceed $75 million, and not including
the aggregate liquidation preference of any preferred stock or other
senior securities issued in lieu thereof (the "Preferred Stock")) and
(ii) accumulated and unpaid dividends on the Preferred Stock. The fee to
the Manager will be computed weekly and will be paid to the Manager
monthly as soon as practicable following the end of each month.
In the case of the commencement or termination of this Agreement
during any month, the fee with respect to such month shall be adjusted
proportionately."
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the firm of Arthur Andersen LLP as
independent public accountants for the Fund for the fiscal year ending October
31, 1999. In accordance with the 1940 Act, the employment of such accountants
is conditioned upon the right of a majority of the outstanding voting
securities as defined above to terminate such employment. Stockholders are
being asked to ratify the selection of Arthur Andersen LLP to perform audit
services for the Fund.
Arthur Andersen LLP has acted as independent public accountants for the
Fund since inception. The services provided by Arthur Andersen LLP consist of
(1) examination and audit of the Fund's semi-annual and annual financial
statements, (2) assistance and consultation in connection with Securities and
Exchange Commission filings and (3) review of tax matters on behalf of the
Fund.
A representative of Arthur Andersen LLP is not expected to be represented
at the Annual Meeting but a representative of that firm will be available by
telephone to respond to appropriate questions.
REQUIRED VOTE
Approval of the foregoing proposal requires the affirmative vote of the
holders of a majority of the Common Stock present and voting at the meeting.
Abstentions will not be counted as votes cast and will have no effect on the
result of the vote, although abstentions will count towards the presence of a
quorum.
The Board of Directors, including those Directors who are not interested
persons of the Fund, recommends a vote FOR ratification of the selection of
Arthur Andersen LLP as independent public accountants of the Fund for the
fiscal year ending October 31, 1999.
ANNUAL REPORT
All stockholders of record as of December 29, 1998, have been furnished or
are concurrently herewith being furnished with, a copy of the Fund's Annual
Report for the fiscal year ended October 31, 1998, which contains certified
financial statements of the Fund for the fiscal year ended October 31, 1998.
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE ANNUAL REPORT AND THE
FUND'S SEMI-ANNUAL REPORT FOR THE SIX MONTHS ENDED APRIL 30, 1998 TO A
SHAREHOLDER UPON REQUEST.
OTHER MATTERS TO COME BEFORE THE MEETING
The Directors do not intend to present any other business at the Annual
Meeting nor are they aware that any stockholder intends to do so. If, however,
any other matters are properly brought before the Annual Meeting, the persons
named in the accompanying proxy will vote thereon in accordance with their
judgment.
STOCKHOLDER PROPOSALS
Any proposals of stockholders that are intended to be presented at the
Fund's 2000 Annual Meeting of Stockholders must be received at the Fund's
principal executive offices no later than August 31, 1999 and must comply with
all other legal requirements in order to be included in the Fund's proxy
statement and form of proxy for that meeting.
On May 21, 1998 the Securities and Exchange Commission adopted an
amendment to Rule 14a-4, as promulgated under the Securities and Exchange Act
of 1934, as amended. The amendment to Rule 14a-4 (c) (1) governs the Fund's
use of its discretionary proxy voting authority with respect to a stockholder
proposal which is not addressed in the Fund's proxy statement. The new
amendment provides that if a proponent of a proposal fails to notify the Fund
at least 45 days prior to the month and day of mailing of the prior year's
proxy statement, then the Fund will be allowed to use its discretionary voting
authority when the proposal is raised at the meeting, without any discussion
of the matter in the proxy statement.
With respect to the Fund's 2000 Annual Meeting of Stockholders, if the
Fund is not provided notice of a stockholder proposal, which the stockholder
has not previously sought to include in the Fund's proxy statement by November
22, 1999, the Fund will be allowed to use its voting authority as outlined
above.
By Order of the Board of Directors
/s/ Richard E. Omohundro, Jr.
RICHARD E. OMOHUNDRO, JR.
President
Boston, Massachusetts
January 6, 1999
PROSPECT STREET HIGH INCOME PORTFOLIO INC.
ANNUAL MEETING OF STOCKHOLDERS - MARCH 12, 1999 -
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned holder of shares of Common Stock of Prospect Street
High Income Portfolio Inc., a Maryland corporation (the "Fund"), hereby appoints
Richard E. Omohundro, Jr. and John A. Frabotta, and each of them, with full
power of substitution and revocation, as proxies to represent the undersigned at
the Annual Meeting of Stockholders of the Fund to be held at 60 State Street,
37th Floor, Boston, Massachusetts 02109, on March 12, 1999 at 10:00 a.m., and at
any and all adjournments thereof, and thereat to vote all shares of Common Stock
of the Fund which the undersigned would be entitled to vote, with all powers the
undersigned would possess if personally present, in accordance with the
instructions on this proxy.
Please mark the boxes in blue or black ink.
1. GRANTING /_/ WITHHOLDING /_/ authority to vote for the election as Directors
of all the nominees listed below:
Richard E. Omohundro, Jr., John A. Frabotta, John S. Albanese, C. William Carey,
Joseph G. Cote, Harlan D. Platt and Christopher E. Roshier.
- ---------------------------------------------------------------------
(Instructions: To withhold authority to vote for any individual nominee, write
such nominee's name in the space provided above.)
2. With respect to the proposal to approve a new Advisory Agreement which will
increase the annual advisory fee to 0.70% of the Fund's average annual net
assets up to and including $200,000,000 and 0.65% of the excess of such managed
assets over $200,000,000.
FOR /_/ AGAINST /_/ ABSTAIN /_/
3. With respect to the proposal to ratify the selection of Arthur Andersen LLP
as independent public accountants of the Fund for the fiscal year ending October
31, 1999.
FOR /_/ AGAINST /_/ ABSTAIN /_/
4. In their discretion, on such other matters as may properly come before the
meeting and any adjournment thereof.
Dated:---------------------, 1999
------------------------
Signature
------------------------
Signature
Please sign exactly as name
or names appear on this
proxy. If stock is held
jointly, each holder should
sign. If signing as
attorney, trustee, executor,
administrator, custodian,
guardian or corporate
officer, please give full
title.
WHEN THIS PROXY IS PROPERLY EXECUTED, THE SHARES REPRESENTED HEREBY WILL BE
VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF ALL NOMINEES AS DIRECTORS, THE APPROVAL OF THE NEW ADVISORY
AGREEMENT, FOR THE RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT PUBLIC
ACCOUNTANTS AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO ALL OTHER
MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENT THEREOF.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE ACCOMPANYING NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT.