<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1998
SECURITIES ACT FILE NO. 333-48351
INVESTMENT COMPANY ACT FILE NO. 811-08709
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM N-2
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 1
[_] POST-EFFECTIVE AMENDMENT NO.
AND/OR
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] AMENDMENT NO. 1
(CHECK APPROPRIATE BOX OR BOXES)
--------------
SALOMON BROTHERS HIGH INCOME FUND II INC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
--------------
SEVEN WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(888) 777-0102
ROBERT A. VEGLIANTE, ESQ.
SALOMON BROTHERS HIGH INCOME FUND II INC
SEVEN WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 783-7000
(NAME AND ADDRESS OF AGENT FOR SERVICE)
--------------
COPIES TO:
GARY S. SCHPERO, ESQ.
SIMPSON THACHER & BARTLETT THOMAS A. DECAPO, ESQ.
425 LEXINGTON AVENUE SKADDEN, ARPS, SLATE, MEAGHER & FLOM
LLP
NEW YORK, NEW YORK 10017
ONE BEACON STREET
(212) 455-2000 BOSTON, MASSACHUSETTS 02108
--------------
(617) 573-4800
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
If any securities being registered on this form will be offered on a delayed
or continuous basis in reliance on Rule 415 under the Securities Act of 1933,
as amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [X]
It is proposed that this filing will become effective (check appropriate
box):
[X] When declared effective pursuant to section 8(c).
If appropriate, check the following box: [_] this [post-effective] amendment
designates a new effective date for a previously filed [post-effective
amendment] [registration statement].
[_] This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED(1)(3)(4) PER SHARE(1) OFFERING PRICE(1)(3) FEE(2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value................... 4,600,000 Shares $15.00 $69,000,000 $20,355
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $295 has previously been transmitted to the designated lockbox at Mellon
Bank in Pittsburgh, PA.
(3) Assuming exercise in full of the option granted by the Fund to the
Underwriters to purchase up to an additional 600,000 shares of Common
Stock to cover over-allotments. See "Underwriting."
(4) Includes shares that may be reoffered and resold by Salomon Smith Barney
in market-making transactions after trading in shares commences on the New
York Stock Exchange, Inc. or other national securities exchange.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET
PURSUANT TO RULE 481(A)
<TABLE>
<CAPTION>
N-2 ITEM NUMBER LOCATION IN PROSPECTUS (CAPTION)
--------------- --------------------------------
<C> <S> <C>
PART A
1. Outside Front Cover......... Outside Front Cover Page
2. Inside Front and Outside Outside Front Cover Page; Inside Front
Back Cover Page............ Cover Page; Outside Back Cover Page
3. Fee Table and Synopsis...... Prospectus Summary; Fee Table
4. Financial Highlights........ Not Applicable
5. Plan of Distribution........ Outside Front Cover Page; Prospectus
Summary; Management of the Fund;
Underwriting
6. Selling Shareholders........ Not Applicable
7. Use of Proceeds............. Use of Proceeds; Investment Objectives and
Policies
8. General Description of the Outside Front Cover Page; Prospectus
Registrant................. Summary; Risk Factors & Special
Considerations; The Fund; Investment
Objectives and Policies; Additional
Investment Activities; Description of
Capital Stock
9. Management.................. Outside Front Cover; Prospectus Summary;
Management of the Fund; Custodian,
Transfer Agent, Dividend Paying Agent and
Registrar
10. Capital Stock, Long-Term
Debt, and Other Outside Front Cover Page; Prospectus
Securities................. Summary; Investment Objectives and
Policies; Description of Capital Stock;
Taxation
11. Defaults and Arrears on
Senior Securities.......... Not Applicable
12. Legal Proceedings........... Not Applicable
13. Table of Contents of the
Statement of Additional
Information................ Not Applicable
PART B
14. Cover Page.................. Outside Front Cover Page
15. Table of Contents........... Outside Back Cover Page
16. General Information and
History.................... The Fund
17. Investment Objectives and Investment Objectives and Policies;
Policies................... Investment Restrictions
18. Management.................. Management of the Fund
19. Control Persons and
Principal Holders of
Securities................. Not Applicable
20. Investment Advisory and
Other Services............. Management of the Fund
21. Brokerage Allocation and
Other Practices............ Portfolio Transactions
22. Tax Status.................. Taxation
23. Financial Statements........ Report of Independent Accountants;
Statement of Assets and Liabilities
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED APRIL 29, 1998
4,000,000 SHARES
SALOMON BROTHERS HIGH INCOME FUND II INC
COMMON STOCK
($.001 PAR VALUE)
----------
Salomon Brothers High Income Fund II Inc (the "Fund") is a newly organized,
closed-end management investment company that seeks to maximize current income
by investing primarily in a diversified portfolio of high yield debt securities
rated at the time of investment in medium or lower rating categories ("Baa" or
lower by Moody's Investors Service, Inc. ("Moody's") or "BBB" or lower by
Standard & Poor's Ratings Group ("S&P")) or in unrated fixed-income securities
determined by the Fund's investment manager to be of comparable quality. As a
secondary objective, the Fund will seek capital appreciation to the extent
consistent with its objective of seeking to maximize current income. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in high yield debt securities. The Fund may invest up to 35% of its total
assets in foreign debt securities, which the Fund expects will primarily
consist of debt securities of issuers located in emerging market countries.
There can be no assurance that the Fund's investment objectives will be
achieved.
HIGH YIELD DEBT SECURITIES ARE CONSIDERED SPECULATIVE AND ARE SUBJECT TO
CERTAIN RISKS, INCLUDING GREATER PRICE VOLATILITY AND A GREATER RISK OF LOSS OF
PRINCIPAL AND INTEREST. The Fund is designed for investors willing to assume
additional risk in return primarily for the potential for high current income
and secondarily for capital appreciation. An investment in the Fund should be
considered speculative in that it involves a high degree of risk and should not
constitute a complete investment program. Investors should carefully assess the
risks associated with an investment in the Fund. SEE "RISK FACTORS AND SPECIAL
CONSIDERATIONS" AND "INVESTMENT OBJECTIVES AND POLICIES."
Because the Fund is newly organized, its shares have no history of public
trading. Shares of closed-end investment companies frequently trade at a
discount from their net asset value. This risk may be greater for initial
investors expecting to sell their shares in a relatively short period after
completion of the public offering. See "Risk Factors and Special
Considerations."
(Continued on next page)
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO PUBLIC(1) SALES LOAD(1)(2) PROCEEDS TO FUND(3)(4)
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $15.00 none $15.00
- ---------------------------------------------------------------------
Total(4) $60,000,000 none $69,000,000
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Footnotes on the following page)
----------
The shares of Common Stock are being offered by the Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. It is expected that delivery of the shares of Common Stock
will be made in book-entry form through the facilities of The Depository Trust
Company on or about May , 1998.
----------
SALOMON SMITH BARNEY A.G. EDWARDS & SONS, INC. ADVEST, INC.
EVEREN SECURITIES, INC.
FAHNESTOCK & CO. INC.
JANNEY MONTGOMERY SCOTT INC.
LEGG MASON WOOD WALKER MCDONALD & COMPANY
MORGAN KEEGAN & COMPANY, INC.
SECURITIES, INC.
INCORPORATED
THE ROBINSON-HUMPHREY COMPANY
TUCKER ANTHONY WEDBUSH MORGAN SECURITIES
INCORPORATED
May , 1998
<PAGE>
(Continued from previous page)
Salomon Brothers Asset Management Inc will serve as investment manager to
the Fund.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "HIX" subject to official notice of issuance. PRIOR
TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE FUND'S SHARES OF
COMMON STOCK.
At times, the Fund may utilize leverage through borrowing or by issuing
shares of preferred stock or debt securities in an amount up to 33 1/3% of the
Fund's total assets including the amount obtained from leverage. The Fund
intends to utilize leverage in an initial amount equal to approximately 25% of
its total assets including the amount obtained from leverage. Through these
leveraging techniques, the Fund will seek to obtain a higher return for
holders of Common Stock than if the Fund did not use leverage. Leverage is a
speculative technique and there are special risks and costs associated with
leveraging. There can be no assurance that a leveraging strategy will be
successful during any period in which it is employed. See "Risk Factors and
Special Considerations--Leverage" and "Additional Investment Activities--
Leverage."
The address of the Fund is Seven World Trade Center, New York, New York
10048, and the Fund's telephone number is (888) 777-0102. Investors are
advised to read this Prospectus, which sets forth information about the Fund
that investors should know before investing, and to retain it for future
reference. The Securities and Exchange Commission (the "Commission") maintains
a web site (http://www.sec.gov) that contains material incorporated by
reference and other information regarding registrants that file electronically
with the Commission.
------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK OF THE FUND, INCLUDING THE ENTRY OF STABILIZING BIDS, COVERING
TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
------------
(Footnotes from cover page)
(1) The investment manager or an affiliate will pay the Underwriters a
commission in the amount of % of the Price to Public per share in
connection with the sale of shares of Common Stock offered hereby. See
"Underwriting."
(2) The Fund and the investment manager have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
(3) Before deducting organizational and offering expenses payable by the
Fund (including $ to be paid to the Underwriters as reimbursement of
certain of their expenses in connection with the offering), estimated
at $ .
(4) The Fund has granted the Underwriters an option exercisable for 60 days
after the date hereof to purchase up to an additional 600,000 shares to
cover over-allotments. If all such shares are purchased, the total
Price to Public and Proceeds to Fund will be $69,000,000. See
"Underwriting."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus.
The Fund................
The Fund is a newly organized, closed-end management
investment company which seeks to maximize current
income. The investment manager believes that by
investing in high yield U.S. debt securities
supplemented by high yield foreign debt securities,
the Fund can diversify its risk and enhance the
overall credit quality of its portfolio while
maintaining a high level of current income. See
"The Fund."
Investment Objectives
and Policies...........
The Fund's investment objective is to seek to
maximize current income by investing primarily in a
diversified portfolio of high yield debt securities
rated at the time of investment in medium or lower
rating categories ("Baa" or lower by Moody's or
"BBB" or lower by S&P) or in unrated fixed-income
securities determined by the Fund's investment
manager to be of comparable quality. As a secondary
objective, the Fund will seek capital appreciation
to the extent consistent with its objective of
seeking to maximize current income.
Under normal market conditions, the Fund will invest
at least 65% of its total assets in high yield debt
securities. The Fund may invest up to 35% of its
total assets in foreign debt securities, which the
Fund expects will primarily consist of debt
securities of issuers located in emerging market
countries. The Fund initially intends to invest
approximately 20% to 25% of its total assets in
debt securities of issuers located in emerging
market countries. Medium and low-rated and
comparable unrated securities, commonly known as
"junk bonds," offer yields that fluctuate over time
but generally are superior to yields on higher-
rated securities. However, such debt securities
also involve greater risks than higher-rated
securities. Certain of the debt securities
purchased by the Fund may be rated as low as "C" by
Moody's or "D" by S&P or may be comparable to
securities so rated. For a description of the
Moody's "C" rating and the S&P "D" rating, see
"Investment Objectives and Policies--General" and
Appendix A to this Prospectus. The Fund is designed
for investors willing to assume additional risk in
return for the potential for high current income
and capital appreciation. The Fund is not intended
to be a complete investment program and there is no
assurance that the Fund will achieve its
objectives. See "Investment Objectives and
Policies."
3
<PAGE>
The Fund may invest up to 30% of its total assets in
zero coupon securities, pay-in-kind bonds and
deferred payment securities, up to 20% of its total
assets in equity securities (certain equity
securities may be treated as debt securities for
purposes of the Fund's policy to invest at least
65% of its total assets, under normal
circumstances, in high yield debt securities) and
may invest in loan participations and assignments.
See "Investment Objectives and Policies--Other
Investments--Zero Coupon Securities, Pay-in-Kind
Bonds and Deferred Payment Securities," "--Loan
Participations and Assignments" and "--Equity
Securities."
At times, the Fund may utilize leverage through
borrowing or by issuing shares of preferred stock
or debt securities in an amount up to 33 1/3% of
the Fund's total assets including the amount
obtained from leverage. The Fund intends to utilize
leverage in an initial amount equal to
approximately 25% of its total assets including the
amount obtained from leverage. Through these
leveraging techniques, the Fund will seek to obtain
a higher return for holders of Common Stock than if
the Fund did not use leverage. Leverage is a
speculative technique and there are special risks
and costs associated with leveraging. The Fund will
seek to limit certain risks associated with
leverage by investing in certain floating rate debt
securities. There can be no assurance that a
leveraging strategy will be successful during any
period in which it is employed. See "Additional
Investment Activities--Leverage."
The Offering............
4,000,000 shares of Common Stock, par value $.001
per share (the "Common Stock"), of the Fund are
being offered for sale through the several
underwriters (collectively, the "Underwriters") for
whom Salomon Smith Barney is acting as
representative. The number of shares offered may be
substantially different in the final prospectus.
The initial public offering price of the Common
Stock is $15.00 per share. The minimum purchase is
100 shares ($1,500.00). In addition, the Fund has
granted the Underwriters an option to purchase up
to 600,000 additional shares to cover over-
allotments, which number may also be substantially
different in the final prospectus. See
"Underwriting."
Listing.................
Prior to this offering, there has been no public
market for the shares of Common Stock of the Fund.
The Common Stock has been approved for listing on
the New York Stock Exchange (the "NYSE") under the
symbol HIX, subject to official notice of issuance.
4
<PAGE>
Stock Symbol............
"HIX"
Investment Manager......
Salomon Brothers Asset Management Inc ("SBAM") is
the Fund's investment manager and will manage the
Fund's investment portfolio in accordance with the
Fund's investment objectives and policies. SBAM
provides a full range of fixed income and equity
investment advisory services for its individual and
institutional clients throughout the world and
provides investment advisory services to over 134
institutional accounts. As of March 31, 1998, SBAM
and its worldwide investment advisory affiliates
managed approximately $27.6 billion of assets. SBAM
has access to hundreds of affiliated economists and
bond, sovereign and equity analysts, including a
staff dedicated to high yield credit research and
to emerging markets sovereign credit research.
Peter J. Wilby is primarily responsible for the day-
to-day management of the Fund. Mr. Wilby, who
joined SBAM in 1989, is a Managing Director and a
Senior Portfolio Manager of SBAM, responsible for
SBAM's investment company and institutional
portfolios which invest in high yield U.S. and
foreign corporate debt securities and high yield
foreign sovereign debt securities. Mr. Wilby is
portfolio manager for, among others, Salomon
Brothers High Income Fund Inc; Salomon Brothers
Worldwide Income Fund Inc; The Emerging Markets
Income Fund Inc; The Emerging Markets Income Fund
II Inc; the foreign sovereign debt component of
Salomon Brothers 2008 Worldwide Dollar Government
Term Trust Inc; The Emerging Markets Floating Rate
Fund Inc.; Global Partners Income Fund Inc.;
Salomon Brothers High Yield Bond Fund and the high
yield and sovereign debt portions of Salomon
Brothers Strategic Bond Fund, each a portfolio of
Salomon Brothers Series Funds Inc; Salomon Brothers
Institutional High Yield Bond Fund and Salomon
Brothers Institutional Emerging Markets Debt Fund,
each a portfolio of Salomon Brothers Institutional
Series Funds Inc; and Salomon Brothers Variable
High Yield Bond Fund and the high yield and
sovereign bond portions of Salomon Brothers
Variable Strategic Bond Fund, each a portfolio of
Salomon Brothers Variable Series Funds Inc. See
"Management of the Fund."
Management and
Administration Fees.... The Fund will pay SBAM for its investment management
services a monthly fee at an annual rate of 1.00%
of the value of the Fund's average weekly net
assets (which includes any proceeds from the
issuance of preferred stock) plus the proceeds of
any outstanding
5
<PAGE>
borrowings used for leverage. See "Management of
the Fund--Investment Manager." This fee is higher
than fees paid by other comparable investment
companies. The Fund will also pay Mutual Management
Corp. (the "Administrator") for its administrative
services a monthly fee at an annual rate of .10% of
the value of the Fund's average weekly net assets
(which includes any proceeds from the issuance of
preferred stock) plus the proceeds of any
outstanding borrowings used for leverage. See
"Management of the Fund--Administrator." During
periods in which the Fund is utilizing financial
leverage, the fees which are payable to SBAM and
the Administrator as a percentage of the Fund's
assets will be higher than if the Fund did not
utilize a leveraged capital structure because the
fees are calculated as a percentage of the Fund's
assets, including those purchased with leverage.
See "Risk Factors and Special Considerations--
Leverage" and "Additional Investment Activities--
Leverage."
Dividends and
Distributions.......... Beginning with its initial distribution
approximately 60 days after completion of this
offering, it is the Fund's present policy, which
may be changed by the Board of Directors, to make
regular monthly cash distributions to holders of
Common Stock at a level rate that reflects the past
and projected performance of the Fund, which over
time will result in the distribution of all net
investment income of the Fund, and to distribute
any net realized capital gains at least annually.
From and after the leveraging (if any) of the
Common Stock, monthly distributions to holders of
Common Stock will generally consist of net
investment income remaining after the payment of
interest or dividends on any outstanding leverage,
subject to the Fund's present policy of making
distributions at a level rate as described above.
For tax purposes, the Fund is currently required to
allocate net capital gains and other taxable income
between shares of Common Stock and shares of
preferred stock, if any. As a result of the Fund's
anticipated investment in certain Brady Bonds and
other sovereign debt obligations acquired at a
discount as well as its ability to invest in zero
coupon securities and pay-in-kind bonds, the Fund
expects to make distributions of net investment
income in amounts greater than the total amount of
cash interest actually received in order to satisfy
certain requirements under current federal income
tax law. See "Investment Objectives and Policies--
Other Investments--Zero Coupon Securities, Pay-in-
Kind Bonds and Deferred Payment Securities."
6
<PAGE>
Dividend Reinvestment Under the Fund's Dividend Reinvestment Plan (the
Plan.............. "Plan"), shareholders will have all dividends and
distributions automatically reinvested in
additional shares of Common Stock of the Fund
unless the shareholder elects to receive cash or
the Board of Directors of the Fund declares a
dividend or distribution payable only in cash.
Shareholders whose shares are held in the name of a
broker or nominee should contact such broker or
nominee to confirm that they may participate in the
Plan. See "Dividends and Distributions; Dividend
Reinvestment Plan."
Taxation................
The Fund intends to elect and qualify to be treated
as a regulated investment company for U.S. federal
income tax purposes. As such, it will generally not
be subject to U.S. federal income tax on income and
gains that are distributed to shareholders. See
"Taxation."
Custodian, Transfer
Agent, Dividend Paying
Agent and Registrar....
PNC Bank, N.A. will act as custodian for the Fund's
assets. First Data Investor Services Group, Inc.
will act as transfer agent, dividend paying agent
and registrar for the Fund's Common Stock.
7
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
General Considerations
Relating to High Yield
Debt Securities........ The net asset value of the Fund's shares will change
with fluctuations in the value of its portfolio
securities. The high yield corporate debt
securities, commonly known as "junk bonds," and
high yield foreign debt securities in which the
Fund will invest generally will be rated, at the
time of investment, in the categories "Baa" or
lower by Moody's or "BBB" or lower by S&P, or will
be of comparable quality. These lower-rated and
comparable unrated securities involve greater risks
than higher-rated securities. Under rating agency
guidelines, lower-rated securities and comparable
unrated securities will likely have some quality
and protective characteristics that are outweighed
by large uncertainties or major risk exposures to
adverse conditions. Lower-rated securities may have
poor prospects of ever attaining any real
investment standing, may have a current
identifiable vulnerability to default, may be
unlikely to have the capacity to pay interest and
repay principal when due in the event of adverse
business, financial or economic conditions and/or
may be in default or not current in the payment of
interest or principal. Such securities are
considered speculative with respect to the issuer's
capacity to pay interest and repay principal in
accordance with the terms of the obligations.
Accordingly, it is possible that these types of
factors could reduce the value and liquidity of
securities held by the Fund, with a commensurate
effect on the value of the Fund's shares.
Because the Fund will invest primarily in fixed-
income securities, the net asset value of the
Fund's portfolio, and hence its shares, can be
expected to change as general levels of interest
rates fluctuate, although the market values of
securities rated below investment grade and
comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those
of higher-rated securities. Except to the extent
that values are affected independently by other
factors such as developments relating to a specific
issuer, when interest rates decline, the value of a
fixed-income portfolio can generally be expected to
rise. Conversely, when interest rates rise, the
value of a fixed-income portfolio can generally be
expected to decline. These fluctuations can be
expected to be greater with respect to investments
in fixed-income securities with longer maturities
than investments in securities with shorter
maturities. Although there is no limitation on the
average maturity of the Fund's portfolio, SBAM
currently expects
8
<PAGE>
that the Fund's high yield debt portfolio will
initially have an average maturity of 8 to 15
years. However, because many fixed-income
securities contain redemption features, the actual
average maturity of the Fund's portfolio may be
considerably less. See "--Considerations Relating
to High Yield Corporate Securities."
The secondary markets for high yield debt securities
are not as liquid as the secondary markets for
higher-rated securities. The secondary markets for
high yield debt securities are characterized by
relatively few market makers, participants in the
market being mostly institutional investors
including insurance companies, banks, other
financial institutions and mutual funds. In
addition, the trading volume for high yield debt
securities is generally lower than that for higher-
rated securities, and the secondary markets could
contract under adverse market or economic
conditions independent of any specific adverse
changes in the condition of a particular issuer.
Adverse publicity and investor perceptions, whether
or not based on fundamental analysis, may decrease
the values and liquidity of high yield securities,
especially in a thinly-traded market. These factors
may have an adverse effect on the Fund's ability to
dispose of particular portfolio investments and may
limit the ability of the Fund to obtain accurate
market quotations for purposes of valuing
securities and calculating net asset value. If the
Fund is not able to obtain precise or accurate
market quotations for a particular security, it
will become more difficult for the Board of
Directors or its delegate to value the Fund's
portfolio securities and the Board or its delegate
may have to use a greater degree of judgment in
making such valuations. Less liquid secondary
markets may also affect the Fund's ability to sell
securities at their fair value. The Fund may invest
without limitation in illiquid securities, which
are more difficult to value and to sell at fair
value. If the secondary markets for high yield debt
securities contract due to adverse economic
conditions or for other reasons, certain liquid
securities in the Fund's portfolio may become
illiquid and the proportion of the Fund's assets
invested in illiquid securities may increase.
Prices for high yield securities may be affected by
legislative and regulatory developments which could
adversely affect the Fund's net asset value and
investment practices, the secondary market for high
yield securities, the financial condition of
issuers of these securities and the value of
outstanding high yield securities.
9
<PAGE>
Considerations Relating
to High Yield While the market values of corporate debt securities
Corporate Securities... rated below investment grade and comparable unrated
securities tend to react less to fluctuations in
interest rate levels than do those of higher-rated
securities, the market values of the former also
tend to be more sensitive to company-specific
developments and changes in economic conditions
than higher-rated securities. Issuers of corporate
debt securities rated below investment grade and
comparable unrated securities are often highly
leveraged, so that their ability to service their
debt obligations during an economic downturn or
during sustained periods of rising interest rates
may be impaired. In addition, such issuers may not
have more traditional methods of financing
available to them, and may be unable to repay debt
at maturity by refinancing. The risk of loss due to
default in payment of interest or principal by such
issuers is significantly greater than with
investment grade securities because lower-rated
securities generally are unsecured and subordinated
to the prior payment of senior indebtedness. The
Fund may also incur additional expenses to the
extent that it is required to seek recovery upon a
default in the payment of principal or interest on
its portfolio holdings.
Many fixed-income securities, including corporate
debt securities in which the Fund may invest,
contain call or buy-back features which permit the
issuer of the security to call or repurchase it.
Such securities may present risks based on payment
expectations. If an issuer exercises such a "call
option" and redeems the security, the Fund may have
to replace the called security with a lower
yielding security, resulting in a decreased rate of
return for the Fund. For additional risks relating
to high yield foreign corporate debt securities,
see "--Considerations Relating to High Yield
Foreign Corporate Debt Securities."
Considerations Relating
to High Yield Foreign
Sovereign Debt
Securities........ Investments in foreign sovereign debt securities
involve certain risks not typically associated with
U.S. corporate investments. Investing in foreign
sovereign debt securities, especially in emerging
market countries, will expose the Fund to the
direct or indirect consequences of political,
social or economic changes in the countries that
issue the securities or in which the issuers are
located. The ability and willingness of sovereign
obligors or the governmental authorities that
control repayment of their external debt to pay
principal and interest
10
<PAGE>
on such debt when due may depend on general
economic and political conditions within the
relevant country. Certain countries in which the
Fund may invest, especially emerging market
countries, have historically experienced, and may
continue to experience, high rates of inflation,
high interest rates, exchange rate fluctuations,
large amounts of external debt, balance of payments
and trade difficulties and extreme poverty and
unemployment. Many of these countries are also
characterized by political uncertainty or
instability. Additional factors that may influence
the ability or willingness to service debt include,
but are not limited to, a country's cash flow
situation, the availability of sufficient foreign
exchange on the date a payment is due, the relative
size of its debt service burden to the economy as a
whole, and its government's policy towards the
International Monetary Fund (the "IMF"), the
International Bank for Reconstruction and
Development (the "World Bank") and other
international agencies to which a government debtor
may be subject. A substantial portion of the Fund's
foreign sovereign and foreign corporate debt
securities portfolio is expected to be issued by
issuers located in countries considered to be
emerging markets, and investments in such
securities are particularly speculative.
The ability of a foreign sovereign obligor,
especially an obligor in an emerging market
country, to make timely and ultimate payments on
its external debt obligations will also be strongly
influenced by the obligor's balance of payments,
including export performance, its access to
international credits and investments, fluctuations
of interest rates and the extent of its foreign
reserves. A country whose exports are concentrated
in a few commodities or whose economy depends on
certain strategic imports could be vulnerable to
fluctuations in international prices of these
commodities or imports. To the extent that a
country receives payment for its exports in
currencies other than dollars, its ability to make
debt payments denominated in dollars could be
adversely affected. If a foreign sovereign obligor
cannot generate sufficient earnings from foreign
trade to service its external debt, it may need to
depend on continuing loans and aid from foreign
governments, commercial banks, and multilateral
organizations, as well as on inflows of foreign
investment. The commitment on the part of these
foreign governments, multilateral organizations and
others to make such disbursements may be
conditioned on the government's implementation of
economic reforms and/or economic performance and
the timely service of its obligations. Failure to
implement such
11
<PAGE>
reforms, achieve such levels of economic
performance or repay principal or interest when due
may result in the cancellation of such third
parties' commitments to lend funds, which may
further impair the obligor's ability or willingness
to timely service its debts. The cost of servicing
external debt will also generally be adversely
affected by rising international interest rates
because many external debt obligations bear
interest at rates which are adjusted based upon
international interest rates. The ability to
service external debt will also depend on the level
of the relevant government's international currency
reserves and its access to foreign exchange.
Currency devaluations may affect the ability of a
sovereign obligor to obtain sufficient foreign
exchange to service its external debt. The risks
enumerated above generally are heightened with
regard to issuers in emerging market countries.
As a result of the foregoing, a governmental
obligor, particularly in an emerging market
country, may default on its obligations. If such an
event occurs, the Fund may have limited legal
recourse against the issuer and/or guarantor.
Remedies must, in some cases, be pursued in the
courts of the defaulting party itself, and the
ability of the holder of foreign sovereign debt
securities to obtain recourse may be subject to the
political climate in the relevant country. In
addition, no assurance can be given that the
holders of commercial bank debt will not contest
payments to the holders of other foreign sovereign
debt obligations in the event of default under
their commercial bank loan agreements.
Sovereign obligors in developing and emerging
countries are among the world's largest debtors to
commercial banks, other governments, international
financial organizations and other financial
institutions. Certain issuers of the sovereign debt
securities in which the Fund expects to invest have
in the past experienced substantial difficulties in
servicing their external debt obligations, which
have led to defaults on certain obligations and the
restructuring of certain indebtedness.
Restructuring arrangements have included, among
other things, reducing and rescheduling interest
and principal payments by negotiating new or
amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds (as
described herein) and obtaining new credit to
finance interest payments. Holders of certain
foreign sovereign debt securities may be requested
to participate in the restructuring of such
obligations and to extend further loans to their
issuers. There can be no assurance that the Brady
12
<PAGE>
Bonds and other foreign sovereign debt securities
in which the Fund may invest will not be subject to
similar defaults or restructuring arrangements
which may adversely affect the value of such
investments. Furthermore, certain participants in
the secondary market for such debt may be directly
involved in negotiating the terms of these
arrangements and may therefore have access to
information not available to other market
participants.
Payments to holders of the foreign sovereign debt
securities in which the Fund may invest may be
subject to withholding and other taxes imposed by a
foreign government. Although the holders may be
entitled to tax gross-up payments from the issuers
of such instruments, there is no assurance that
such payments will be made.
Considerations Relating
to High Yield Foreign
Corporate Debt
Securities........
In addition to the risks cited under "--
Considerations Relating to High Yield Foreign
Sovereign Debt Securities," including political,
social and economic risks relating to foreign
issuers, investments in securities of foreign
issuers may involve additional risks arising from
differences between U.S. and foreign securities
markets (including, among other things, less
volume, much greater price volatility in and
illiquidity of certain foreign securities markets,
different trading and settlement practices and less
governmental supervision and regulation), from
changes in currency exchange rates, from high and
volatile rates of inflation and, as with domestic
multinational corporations, from fluctuating
interest rates. These risks are generally
heightened with respect to issuers in emerging
market countries.
Investment in certain foreign securities, especially
those of issuers in certain emerging market
countries, is restricted or controlled to varying
degrees by government regulation which may at times
limit or preclude investment in certain foreign
securities and increase the costs and expenses of
the Fund. Certain foreign countries require
governmental approval prior to investments by
foreign persons, limit the amount of investment by
foreign persons in a particular issuer, limit
investment by foreign persons to a specific class
of securities of an issuer that may have less
advantageous rights than other classes, restrict
investment opportunities in issuers in industries
deemed important to national interests and/or
impose additional taxes on foreign investors.
13
<PAGE>
Certain foreign countries, especially certain
emerging market countries, may require governmental
approval for the repatriation of investment income,
capital or the proceeds of sales of securities by
foreign investors which could adversely affect the
Fund. In addition, if a deterioration occurs in the
country's balance of payments, it could impose
temporary restrictions on foreign capital
remittances. Investing in local markets in foreign
countries may require the Fund to adopt special
procedures, seek local governmental approvals or
take other actions, each of which may involve
additional costs to the Fund.
Other investment risks include the possible
imposition of foreign withholding taxes on certain
amounts of the Fund's income, the possible seizure
or nationalization of foreign assets and the
possible establishment of exchange controls,
expropriation, confiscatory taxation, other foreign
governmental laws or restrictions which might
affect adversely payments due on securities held by
the Fund, the lack of extensive operating
experience of eligible foreign subcustodians and
legal limitations on the ability of the Fund to
recover assets held in custody by a foreign
subcustodian in the event of the subcustodian's
bankruptcy. Moreover, brokerage commissions and
other transaction costs on foreign securities
exchanges are generally higher than in the United
States.
In addition, there may be less publicly available
information about a foreign issuer, especially one
located in an emerging market country, than about
comparable U.S. issuers, and foreign issuers may
not be subject to the same accounting, auditing and
financial record-keeping standards and requirements
as U.S. issuers. In particular, the assets and
profits appearing on the financial statements of a
foreign issuer may not reflect its financial
position or results of operations in the way they
would be reflected if the financial statements had
been prepared in accordance with U.S. generally
accepted accounting principles. In addition, for an
issuer that keeps accounting records in local
currency, inflation accounting rules may require,
for both tax and accounting purposes, that certain
assets and liabilities be restated on the issuer's
balance sheet in order to express items in terms of
currency of constant purchasing power. Inflation
accounting may indirectly generate losses or
profits. Consequently, financial data may be
materially affected by restatements for inflation
and may not accurately reflect the real condition
of those issuers and securities markets. Finally,
in the event of a default in any such foreign
obligations, it may be more difficult for the Fund
to obtain or enforce a judgment against the issuers
of such obligations.
14
<PAGE>
Considerations Relating
to Foreign Currency
Exchange Rates.... Since the Fund may invest in securities denominated
or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates may
affect the value of securities held by the Fund and
the unrealized appreciation or depreciation of
investments. Currencies of certain countries may be
volatile and subject to risk of revaluation and
therefore may affect the value of securities
denominated in such currencies.
Leverage................
At times, the Fund may utilize leverage by borrowing
or by issuing shares of preferred stock or debt
securities in an amount up to 33 1/3% of the Fund's
total assets including the amount obtained from
leverage. The Fund intends to utilize leverage in
an initial amount equal to approximately 25% of its
total assets including the amount obtained from
leverage. The use of leverage will pose certain
risks for holders of Common Stock including the
possibility of higher volatility of both the net
asset value and market value of the Common Stock.
There can be no assurance that the Fund will be
able to realize a higher return on its investment
portfolio than the then current interest or
dividend rate on any leverage. In the event the
Fund realizes a return on its investment portfolio
which is less than the then current interest or
dividend rate on any leverage, the Fund's leveraged
capital structure would result in a lower yield to
the holders of Common Stock than if the Fund were
not leveraged. Moreover, any decline in the value
of the Fund's assets will be borne entirely by
holders of Common Stock in the form of reductions
in the Fund's net asset value, and any requirement
that the Fund sell assets at a loss in order to
redeem or repay any leverage or for other reasons
would make it more difficult for the net asset
value to recover. Accordingly, the effect of
leverage in a declining market is likely to be a
greater decline in the net asset value of the
Common Stock than if the Fund were not leveraged,
which may be reflected in a greater decline in the
market price of the Common Stock. The Fund will
seek to limit certain risks associated with
leverage by investing in certain floating rate debt
securities. See "Additional Investment Activities--
Leverage."
The Fund's use of leverage will be subject to the
provisions of the Investment Company Act of 1940,
as amended (the "1940 Act"), including asset
coverage requirements and restrictions on the
declaration of dividends and distributions to
holders of Common Stock or purchases of Common
Stock in the event such asset coverage requirements
are not met. In addition, the Fund may seek to have
15
<PAGE>
Moody's, S&P and/or any other nationally recognized
statistical rating organization rate any preferred
stock or debt it issues. As a condition to
obtaining such ratings, the terms of any preferred
stock or debt securities issued will include asset
coverage maintenance provisions which will require
the redemption of shares of preferred stock or the
repayment of debt in the event of non-compliance by
the Fund and may also prohibit dividends and other
distributions on the Common Stock in such
circumstances. In order to meet redemption or
repayment requirements, the Fund may have to
liquidate portfolio securities. Such liquidations
and redemptions would cause the Fund to incur
related transaction costs and could result in
capital losses to the Fund. Prohibitions on
dividends and other distributions on the Common
Stock could impair the Fund's ability to qualify as
a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"). The
1940 Act also requires that holders of preferred
stock, and in certain circumstances holders of debt
securities, have certain voting rights. See
"Additional Investment Activities--Leverage,"
"Taxation" and "Description of Capital Stock."
During periods in which the Fund is utilizing
financial leverage, the fees which are payable to
SBAM and the Administrator as a percentage of the
Fund's assets will be higher than if the Fund did
not utilize a leveraged capital structure because
the fees are calculated as a percentage of the
Fund's assets, including those purchased with
leverage. See "Management of the Fund."
Additional Investment The Fund may employ various additional investment
Strategies........ strategies that entail certain additional or
different risks, such as entering into interest
rate transactions and options and futures
transactions, entering into repurchase agreements,
purchasing securities on a when-issued or delayed
delivery basis, lending portfolio securities and
investing in zero coupon securities, pay-in-kind
bonds and loan participations and assignments. See
"Investment Objectives and Policies--Other
Investments--Zero Coupon Securities, Pay-in-Kind
Bonds and Deferred Payment Securities" and "--Loan
Participations and Assignments," "Additional
Investment Activities" and Appendix B (General
Characteristics and Risks of Hedging and Other
Strategic Transactions) to this Prospectus.
Trading Discount... As a newly organized entity, the Fund has no
operating history. Shares of closed-end investment
companies frequently trade at a discount from net
asset value. This characteristic is a risk separate
and distinct from the risk that the Fund's net
asset value will decrease as a result
16
<PAGE>
of its investment activities and may be greater for
investors expecting to sell their shares in a
relatively short period following completion of
this offering. It should be noted, however, that
shares of some closed-end funds have traded at
premiums to net asset value. The Fund cannot
predict whether its shares will trade at, above or
below net asset value. The Fund is intended
primarily for long-term investors and should not be
considered as a vehicle for trading purposes.
Year 2000.......... The investment management services provided to the
Fund by SBAM depend in large part on the smooth
functioning of its computer systems. Many computer
software systems in use today cannot recognize the
year 2000, but revert to 1900 or some other date,
due to the manner in which dates were encoded or
calculated. The capability of these systems to
recognize the year 2000 could have a negative
impact on SBAM's provision of investment advisory
services, including the handling of securities
trades, pricing and account services. SBAM has
advised the Fund that it has been reviewing all of
its computer systems and actively working on
necessary changes to its systems to prepare for the
year 2000 and expects that given the extensive
testing which it is undertaking its systems will be
year 2000 compliant before such date. In addition,
SBAM has been advised by certain of the Fund's
service providers that they are also in the process
of modifying their systems with the same goal.
There can, however, be no assurance that SBAM or
any other service provider will be successful in
achieving year 2000 compliance, or that interaction
with other non-complying computer systems will not
impair services to the Fund at that time.
Anti-Takeover
Provisions............. The Fund's Articles of Incorporation and By-Laws
contain certain anti-takeover provisions that may
have the effect of inhibiting the Fund's possible
conversion to open-end status and limiting the
ability of other persons to acquire control of the
Fund. In certain circumstances, these provisions
might also inhibit the ability of shareholders to
sell their shares at a premium over prevailing
market prices. The Fund's Board of Directors has
determined that these provisions are in the best
interests of shareholders generally. See
"Description of Capital Stock--Special Voting
Provisions."
--------------------
Investors should carefully consider their ability to
assume the foregoing risks before making an
investment in the Fund. An investment in shares of
the Fund may not be appropriate for all investors.
Given the above-described investment risks inherent
in the Fund, investment in shares of the Fund
should be considered speculative and should not be
considered a complete investment program.
17
<PAGE>
FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load (as a percentage of offering price)................ None
Dividend Reinvestment Plan Fees....................................... None
ANNUAL EXPENSES (as a percentage of net assets attributable to Common
Stock):
Management and Administration Fees(a)(b).............................. 1.10%
Interest Payments on Borrowed Funds(b)................................ None
Other Expenses(b)..................................................... .10%
----
Total Annual Expenses(b)............................................ 1.20%
====
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) total
annual expenses of 1.20% (assuming no
leverage) and 3.63% (assuming leverage of 25%
of the Fund's total assets) and (2) a 5%
annual return throughout the periods:
Assuming No Leverage........................ $12 $ 38 $ 66 $145
Assuming 25% Leverage....................... $37 $111 $188 $389
</TABLE>
(a) See "Management of the Fund."
(b) In the event the Fund utilizes leverage by borrowing in an amount equal to
approximately 25% of the Fund's total assets (including the amount
obtained from leverage), it is estimated that, as a percentage of net
assets attributable to Common Stock, the Management and Administration
Fees would be 1.47%, Interest Payments on Borrowed Funds (assuming an
interest rate of approximately 6.2%, which interest rate is subject to
change based on prevailing market conditions) would be 2.06%, Other
Expenses would be .10% and Total Annual Expenses would be 3.63%. The Fund
may utilize leverage up to 33 1/3% of the Fund's total assets (including
the amount obtained from leverage), depending on economic conditions. See
"Risk Factors and Special Considerations--Leverage" and "Additional
Investment Activities-- Leverage."
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The expenses set forth under "Other Expenses" are based on
estimated amounts through the end of the Fund's first fiscal year on an
annualized basis. The Example set forth above assumes reinvestment of all
dividends and distributions and utilizes a 5% annual rate of return as
mandated by Commission regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES OR ANNUAL RATE OF RETURN, AND ACTUAL
EXPENSES, LEVERAGE AMOUNT OR ANNUAL RATE OF RETURN MAY BE MORE OR LESS THAN
THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE.
18
<PAGE>
THE FUND
The Fund, incorporated in Maryland on March 19, 1998, is a closed-end
management investment company registered under the 1940 Act. The Fund's
investment objective is to seek to maximize current income by investing
primarily in a diversified portfolio of high yield debt securities rated at
the time of investment in medium or lower rating categories or determined by
SBAM to be of comparable quality. As a secondary objective, the Fund will seek
capital appreciation to the extent consistent with its objective of seeking to
maximize current income. SBAM, the Fund's investment manager, believes that by
investing in high yield U.S. debt securities supplemented by high yield
foreign debt securities (which the Fund expects will primarily consist of debt
securities of issuers located in emerging market countries), the Fund can
diversify its risk and enhance the overall credit quality of its portfolio
while maintaining a high level of current income. There can be no assurance
that the Fund's investment objectives will be achieved. Due to the risks
inherent in the securities in which the Fund may invest, the Fund should not
be considered a complete investment program. See "Risk Factors and Special
Considerations."
USE OF PROCEEDS
The net proceeds of this offering, estimated to be $ (or approximately
$ assuming the Underwriters exercise the over-allotment option in full)
after deducting offering and organizational expenses, will be invested in
accordance with the policies set forth under "Investment Objectives and
Policies" within three months from the date of this Prospectus. Initially, the
proceeds will be invested in high quality short-term money market instruments
as described under "Investment Objectives and Policies--Other Investments--
Higher Quality Debt Securities and Money Market Instruments." There will be no
sales load or underwriting discount imposed on sales of shares of Common Stock
in this offering. SBAM or an affiliate (not the Fund) will pay a commission to
the Underwriters from its own assets in connection with sales of shares of
Common Stock in this offering. See "Underwriting."
19
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The Fund's investment objective is to seek to maximize current income by
investing primarily in a diversified portfolio of high yield debt securities
rated at the time of investment in medium or lower rating categories ("Baa" or
lower by Moody's or "BBB" or lower by S&P) or in unrated fixed-income
securities determined by SBAM to be of comparable quality. As a secondary
objective, the Fund will seek capital appreciation to the extent consistent
with its objective of seeking to maximize current income. Under normal market
conditions, the Fund will invest at least 65% of its total assets in high
yield debt securities. The Fund may invest up to 35% of its total assets in
foreign debt securities, which the Fund expects will primarily consist of debt
securities of issuers located in emerging market countries. The Fund initially
intends to invest approximately 20% to 25% of its total assets in debt
securities of issuers located in emerging market countries. Certain of the
debt securities purchased by the Fund may be rated as low as "C" by Moody's or
"D" by S&P or may be comparable to securities so rated. Securities rated "C"
by Moody's are the lowest rated class of securities and can be regarded as
having extremely poor prospects of ever attaining any real investment
standing. Securities rated "D" by S&P are in default on their interest and/or
principal payments. Debt securities rated by both Moody's and S&P need only
satisfy the foregoing ratings standards with respect to either the Moody's or
the S&P rating. The Fund is not required to dispose of a debt security if its
credit rating or credit quality declines. However, SBAM will continue to
evaluate the appropriateness of maintaining such a debt security in the Fund's
portfolio in accordance with the approach described below. Medium and low-
rated and comparable unrated securities offer yields that fluctuate over time,
but generally such yields are superior to the yields offered by higher-rated
securities. However, such debt securities also involve greater risks than
higher-rated securities. See "Risk Factors and Special Considerations." A
description of the ratings used by Moody's and S&P is set forth in Appendix A
to this Prospectus.
SBAM will be free to invest in high yield debt securities of any maturity
and may adjust the average maturity of the Fund's portfolio from time to time,
depending on SBAM's assessment of the relative yields available on securities
of different maturities and its expectations of future changes in interest
rates. Long-term debt securities generally provide a higher yield than short-
term debt securities, and therefore SBAM expects that, based upon current
market conditions and following the investment of the proceeds of this
offering in accordance with the Fund's investment objectives and policies, the
Fund's high yield debt securities will initially have an average maturity of 8
to 15 years. However, because many fixed-income securities contain redemption
features, the actual average maturity of the Fund's portfolio may be
considerably less. See "Risk Factors and Special Considerations--
Considerations Relating to High Yield Corporate Securities."
In light of the risks associated with U.S. and foreign high yield debt
securities, SBAM will take various factors into consideration in evaluating
the creditworthiness of an issuer as well as the appropriateness of the
securities for inclusion in the Fund's portfolio. For corporate debt
securities, these will typically include the issuer's financial resources, its
sensitivity to economic conditions and trends, the operating history of the
issuer and the experience and track record of the issuer's management. For
foreign debt instruments, these will typically include the economic and
political conditions within the issuer's country, the issuer's overall and
external debt levels and debt service ratios (if applicable), the issuer's
access to capital markets and other sources of funding and the issuer's debt
service payment history. SBAM will also review the ratings, if any, assigned
to the security by any recognized
20
<PAGE>
rating agencies, although SBAM's judgment as to the quality of a debt security
may differ from that suggested by the rating published by a rating service. In
addition to the foregoing credit analysis, SBAM will evaluate the relative
value of an investment compared with its perceived credit risk. The Fund's
ability to achieve its investment objectives may be more dependent on SBAM's
credit analysis than would be the case if it invested in higher quality debt
securities.
HIGH YIELD CORPORATE DEBT SECURITIES
The market for high yield U.S. corporate debt securities is more established
than that for high yield foreign corporate debt securities, but has undergone
significant changes in the past and may undergo significant changes in the
future. See "Risk Factors and Special Considerations." High yield foreign and
U.S. corporate securities in which the Fund may invest include bonds,
debentures, notes, commercial paper and preferred stock and will generally be
unsecured. Most of the corporate debt securities will bear interest at fixed
rates. However, the Fund may also invest in corporate debt securities with
variable rates of interest or which involve equity features, such as
contingent interest or participations based on revenues, sales or profits
(i.e., interest or other payments, often in addition to a fixed rate of
return, that are based on the borrower's attainment of specified levels of
revenues, sales or profits and thus enable the holder of the security to share
in the potential success of the venture). It is the Fund's current intention
to seek to limit the possibility that its cost of leverage will adversely
affect its net income during a rising interest rate environment by investing a
portion of its total assets in high yield debt securities with floating
interest rates. See "Additional Investment Activities--Leverage."
HIGH YIELD FOREIGN SOVEREIGN AND FOREIGN CORPORATE DEBT SECURITIES
The Fund may invest up to 35% of its total assets in foreign fixed-income
securities, which the Fund expects will primarily consist of debt securities
of issuers located in emerging market countries. As used in this Prospectus,
an "emerging market country" is any country considered to be an emerging
market country by the World Bank at the time of investment. These countries
generally include every nation in the world except the United States, Canada,
Japan, Australia, New Zealand and most countries located in Western Europe.
These securities may be U.S. dollar denominated or non-U.S. dollar
denominated, including, among others, in hard currencies such as the British
Pound Sterling, the Belgian Franc, the Canadian Dollar, the German Deutsche
Mark, the Dutch Guilder, the European Currency Unit, the French Franc, the
Italian Lira, the Japanese Yen or the Swiss Franc and include: (a) debt
obligations issued or guaranteed by foreign national, provincial, state,
municipal or other governments with taxing authority or by their agencies or
instrumentalities, including Brady Bonds; (b) debt obligations of
supranational entities; (c) debt obligations and other fixed-income securities
of foreign corporate issuers; and (d) non-dollar denominated debt obligations
of U.S. corporate issuers. The Fund may also invest in securities denominated
in currencies of emerging market countries. There is no minimum rating
criteria for the Fund's investments in such securities. A description of Brady
Bonds is set forth below. The risks associated with these investments are
described under the captions "Risk Factors and Special Considerations--
Considerations Relating to High Yield Foreign Sovereign Debt Securities," "--
Considerations Relating to High Yield Foreign Corporate Debt Securities" and
"--Other Investments--Brady Bonds." Moreover, substantial investments in
foreign securities may have adverse tax implications as described under
"Taxation."
STATISTICAL INFORMATION REGARDING HIGH YIELD SECURITIES
The annualized compound total return since 1991 for emerging markets debt
securities, represented by the J.P. Morgan EMBI Index, is 19.40%. The
annualized compound total return since 1991 of high yield bonds,
21
<PAGE>
represented by the Merrill Lynch High Yield Master Index, is 15.65%. The
annualized compound total return since 1991 for long term treasuries,
represented by the Merrill Lynch Governments, U.S. Treasury, Long Term Index
(15+ Years), is 11.03%. The annualized compound total return since 1991 of
corporate bonds, represented by the Merrill Lynch Corporate Master Index (All
Maturities), is 9.97%. The annualized compound total return since 1991 for
intermediate term treasuries, represented by the Merrill Lynch Governments,
U.S. Treasury, Intermediate Term Index (1-9.99 Years), is 7.53%. The
annualized compound total return since 1991 of 91-day treasury bills,
represented by the Merrill Lynch U.S. Treasury, 91-Day Index, is 4.73%. The
J.P. Morgan EMBI Index is an unmanaged index comprised of Brady Bonds issued
by the following countries: Argentina, Brazil, Bulgaria, Ecuador, Mexico,
Panama, Peru, Poland, Russia, and Venezuela. The Merrill Lynch High Yield
Master Index is an unmanaged index of U.S. bonds and U.S. dollar denominated
bonds of non-U.S. issuers, in each case with at least $100 million par amount
outstanding, with a maturity equal to or greater than one year and rated by
S&P in the categories ranging from "BB+" to "C" and rated by Moody's in the
categories ranging from "Ba1" to "C." The Merrill Lynch Corporate Master Index
(All Maturities) is an unmanaged index of fixed-coupon U.S. investment grade
bonds with at least $100 million par amount outstanding with a quality range
between BBB3 and AAA based on composite Moody's and S&P ratings. The
calculation of composite ratings is based on an averaging that is biased to
the lower of the two ratings. The Merrill Lynch Governments, U.S. Treasury,
Long Term Index (15+ Years) is an unmanaged index of all U.S. treasury notes
and bonds with at least $100 million par amount outstanding and with a
maturity greater than or equal to fifteen years. The Merrill Lynch
Governments, U.S. Treasury, Intermediate Term Index (1-9.99 Years) is an
unmanaged index of all U.S. treasury notes and bonds with at least $100
million par amount outstanding and with a maturity greater than or equal to
one year and less than ten years. The Merrill Lynch U.S. Treasury, 91-Day
Index is an unmanaged index which, at the beginning of every month, is
comprised of the U.S. Treasury Bill with a maturity closest to, but not longer
than, 91 days from that date. It is assumed that this issue is held for one
month, then sold with the net proceeds reinvested in the bill selected at the
beginning of the next month. Differences exist between the securities that
comprise the indices shown above, particularly the Merrill Lynch High Yield
Master Index and the J.P. Morgan EMBI Index, and the securities in which the
Fund will invest. The Fund will not seek to match the composition or
performance of any such indices. The performance of the various indices should
not be viewed as indicative of the performance of the Fund. Information for
the J.P. Morgan EMBI Index is not available for periods prior to January 1991.
In addition, past performance is no guarantee of future performance. The
statistical information described above reflects a comparison of the
annualized compound total return percentages of various asset classes as
represented by their respective indices for the period from January 1991
through December 1997. The statistical information described above does not
reflect the past or future performance of the Fund. An investor cannot invest
directly in an index. High yield bonds and emerging markets debt are subject
to greater risks and uncertainties than other securities set forth in the
statistical information described above, including U.S. Treasury securities
which are guaranteed as to the payment of principal and interest by the U.S.
Government.
SBAM believes that the credit quality of outstanding U.S. high yield debt
has improved over the last decade. For example, the default loss rates
(defined as the percentage of high yield bonds (based on par value) which
missed any scheduled interest or principal payments (in that year, net of any
recovery)) for U.S. high yield bonds were approximately 1.66%, 2.93%, 8.42%,
7.16%, 1.91%, 0.56%, 0.96%, 1.24%, 0.65% and 0.65% for calendar years 1988,
1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996 and 1997, respectively. The
statistical information
22
<PAGE>
with respect to historical default loss rates is based on information
contained in Edward I. Altman and Vellore M. Kishore, Defaults and Returns on
High Yield Bonds: Analysis through 1997, New York University Salomon Center
(1998), and is intended to demonstrate default loss rate trends over the
period indicated. It should not be viewed as a definitive indication of the
relative magnitude of changes in credit quality from year to year. Although
other methods of analyzing default experience, such as comparing default
experience of seasoned issues, would produce different relative figures, SBAM
believes that the foregoing default loss rate data evidences a general trend
of improving credit quality.
For the period January 1, 1989 through December 31, 1997, the cumulative
gross default rate for high yield corporate bonds was 38.34%. This figure
represents the probability that a high yield bond issued on January 1, 1989
would default by December 31, 1997. The rate is based on the ratio of the
number of issuers that defaulted on high yield bonds outstanding on January 1,
1989 to the number of issuers at risk of defaulting on such bonds as of such
date and is based only on bonds that have been rated by Moody's. The foregoing
is derived from information obtained by the Fund from the February 1998 issue
of a Moody's publication entitled "Historical Default Rates of Corporate Bond
Issuers, 1920-1997."
The market of outstanding high yield securities has generally increased
since 1977. The aggregate outstanding principal amount of high yield
securities was approximately $24.0 billion, $26.0 billion, $28.0 billion,
$30.0 billion, $32.0 billion, $35.0 billion, $43.0 billion, $59.0 billion,
$83.3 billion, $138.4 billion, $182.8 billion, $207.3 billion, $244.2 billion,
$214.6 billion, $200.9 billion, $199.6 billion, $233.6 billion, $271.5
billion, $296.9 billion, $352.7 billion and $452.3 billion for calendar years
1977, 1978, 1979, 1980, 1981, 1982, 1983, 1984, 1985, 1986, 1987, 1988, 1989,
1990, 1991, 1992, 1993, 1994, 1995, 1996 and 1997, respectively. The
statistical information with respect to historical outstanding principal
amounts of high yield securities is based on information the Fund obtained
from Chase Securities Inc.
The market of outstanding emerging markets debt securities has increased
since 1991. The aggregate outstanding principal amount of emerging markets
debt securities was approximately $32.7 billion in 1991, $32.3 billion in
1992, $64.8 billion in 1993, $70.4 billion in 1994, $75.9 billion in 1995,
$96.8 billion in 1996 and $96.1 billion in 1997. The statistical information
with respect to historical outstanding principal amounts of emerging markets
debt securities is based on information the Fund obtained from J.P. Morgan &
Co.
OTHER INVESTMENTS
Brady Bonds. The Fund expects that a substantial portion of the Fund's
sovereign debt securities will consist of Brady Bonds. Brady Bonds are debt
securities issued under the framework of the Brady Plan, an initiative
announced by U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism
for debtor nations (primarily emerging market countries) to restructure their
outstanding external indebtedness (generally, commercial bank debt). In
restructuring its external debt under the Brady Plan framework, a debtor
nation negotiates with its existing bank lenders as well as multilateral
institutions such as the World Bank and the IMF. The Brady Plan framework, as
it has developed, contemplates the exchange of commercial bank debt for newly
issued bonds (Brady Bonds). Brady Bonds may also be issued in respect of new
money being advanced by existing lenders in connection with the debt
restructuring. The World Bank and/or the IMF support the restructuring by
providing funds pursuant to loan agreements or other arrangements which enable
the debtor nation to collateralize the new Brady Bonds or to repurchase
outstanding bank debt at a discount. Under these arrangements with the World
Bank and/or the IMF, debtor nations have been required to agree to the
23
<PAGE>
implementation of certain domestic monetary and fiscal reforms. Such reforms
have included the liberalization of trade and foreign investment, the
privatization of state-owned enterprises and the setting of targets for public
spending and borrowing. These policies and programs seek to promote the debtor
country's economic growth and development. Investors should recognize that the
Brady Plan only sets forth general guiding principles for economic reform and
debt reduction, emphasizing that solutions must be negotiated on a case-by-
case basis between debtor nations and their creditors. SBAM believes that
economic reforms undertaken by countries in connection with the issuance of
Brady Bonds make the debt of countries that have issued or have announced
plans to issue Brady Bonds an attractive opportunity for investment.
Investors should recognize that Brady Bonds do not have a long payment
history. Agreements implemented under the Brady Plan to date are designed to
achieve debt and debt-service reduction through specific options negotiated by
a debtor nation with its creditors. As a result, the financial packages
offered by each country differ. The types of options have included the
exchange of outstanding commercial bank debt for bonds issued at 100% of face
value of such debt which carry a below-market stated rate of interest
(generally known as par bonds), bonds issued at a discount of face value of
such debt (generally known as discount bonds), bonds bearing an interest rate
which increases over time and bonds issued in exchange for the advancement of
new money by existing lenders. Regardless of the stated face amount and stated
interest rate of the various types of Brady Bonds, the Fund will purchase
Brady Bonds in secondary markets, as described below, in which the price and
yield to the investor reflect market conditions at the time of purchase.
Certain Brady Bonds have been collateralized as to principal due at maturity
by U.S. Treasury zero coupon bonds with a maturity equal to the final maturity
of such Brady Bonds, although the collateral is not available to investors
until the final maturity of the Brady Bonds. Collateral purchases are financed
by the IMF, the World Bank and the debtor nations' reserves. In addition, the
first two or three interest payments on certain types of Brady Bonds may be
collateralized by cash or securities agreed upon by creditors. Subsequent
interest payments may be uncollateralized or may be collateralized over
specified periods of time. A significant amount of the Brady Bonds that the
Fund may purchase have no or limited collateralization, and the Fund will be
relying for payment of interest and principal primarily on the willingness of
the foreign government to make payment in accordance with the terms of the
Brady Bonds. Brady Bonds issued to date are purchased and sold in secondary
markets through U.S. securities dealers and are generally maintained through
European transnational securities depositories. A substantial portion of the
Brady Bonds and other sovereign debt securities in which the Fund will invest
is likely to be acquired at a discount, which involves certain considerations
discussed under "--Zero Coupon Securities, Pay-in-Kind Bonds and Deferred
Payment Securities."
Zero Coupon Securities, Pay-in-Kind Bonds and Deferred Payment
Securities. The Fund may invest up to 30% of its total assets in zero coupon
securities and pay-in-kind bonds. In addition, as indicated above, a
substantial portion of the Fund's sovereign debt securities may be acquired at
a discount, and such purchases shall not be included in the 30% limit referred
to in the previous sentence. These investments involve special risk
considerations. Zero coupon securities are debt securities that pay no cash
income but are sold at substantial discounts from their value at maturity.
When a zero coupon security is held to maturity, its entire return, which
consists of the amortization of discount, comes from the difference between
its purchase price and its maturity value. This difference is known at the
time of purchase, so that investors holding zero coupon securities until
maturity know at the time of their investment what the return on their
investment will be. Zero coupon securities may have conversion features. The
Fund also may purchase pay-in-kind bonds. Pay-in-kind bonds pay all or a
24
<PAGE>
portion of their interest in the form of debt or equity securities. Any such
equity securities received in payment of interest will be subject to the 20%
limitation described under "--Equity Securities." Any such debt securities
received in payment of interest will not be subject to the Fund's credit
quality standards for new investments. Zero coupon securities and pay-in-kind
bonds may be issued by a wide variety of corporate and governmental issuers.
Deferred payment securities are securities that remain zero coupon securities
until a predetermined date, at which time the stated coupon becomes effective
and interest becomes payable at regular intervals.
Zero coupon securities, pay-in-kind bonds and deferred payment securities
tend to be subject to greater price fluctuations in response to changes in
interest rates than are ordinary interest-paying debt securities with similar
maturities. The value of zero coupon securities appreciates more during
periods of declining interest rates and depreciates more during periods of
rising interest rates than ordinary interest-paying securities with similar
maturities. Although zero coupon securities, pay-in-kind bonds and deferred
payment securities are generally not traded on a national securities exchange,
they are widely traded by brokers and dealers.
Current federal income tax law requires the holder of zero coupon
securities, certain pay-in-kind bonds, deferred payment securities and certain
other securities acquired at a discount (such as Brady Bonds) to accrue income
with respect to these securities prior to the receipt of cash payments.
Accordingly, to avoid liability for federal income and excise taxes the Fund
may be required to distribute income accrued with respect to these securities
and may have to dispose of portfolio securities under disadvantageous
circumstances in order to generate cash to satisfy certain distribution
requirements. See "Taxation--The Fund."
Loan Participations and Assignments. The Fund may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between a
corporate borrower or a foreign sovereign entity and one or more financial
institutions ("Lenders"). The Fund may invest in such Loans in the form of
participations in Loans ("Participations") and assignments of all or a portion
of Loans from third parties ("Assignments"). The Fund considers these
investments to be investments in debt securities for purposes of this
Prospectus. Participations typically will result in the Fund having a
contractual relationship only with the Lender, not with the borrower. The Fund
will have the right to receive payments of principal, interest and any fees to
which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the borrower. In connection
with purchasing Participations, the Fund generally will have no right to
enforce compliance by the borrower with the terms of the loan agreement
relating to the Loan, nor any rights of set-off against the borrower, and the
Fund may not benefit directly from any collateral supporting the Loan in which
it has purchased the Participation. As a result, the Fund will assume the
credit risk of both the borrower and the Lender that is selling the
Participation. In the event of the insolvency of the Lender selling a
Participation, the Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the borrower. The Fund
will acquire Participations only if the Lender interpositioned between the
Fund and the borrower is determined by SBAM to be creditworthy. When the Fund
purchases Assignments from Lenders, the Fund will acquire direct rights
against the borrower on the Loan, except that under certain circumstances such
rights may be more limited than those held by the assigning Lender.
The Fund may have difficulty disposing of Assignments and Participations. In
certain cases, the market for such instruments is not highly liquid, and
therefore the Fund anticipates in such cases that such instruments could be
sold only to a limited number of institutional investors. The lack of a highly
liquid secondary market will have an adverse impact on the value of such
instruments and on the Fund's ability to dispose of particular
25
<PAGE>
Assignments or Participations in response to a specific economic event, such
as deterioration in the creditworthiness of the borrower.
Equity Securities. The Fund may invest up to 20% of its total assets in
common stock, convertible securities, warrants, preferred stock or other
equity securities of U.S. and foreign issuers when consistent with the Fund's
objectives. The Fund will generally, but not exclusively, hold such
investments as a result of purchases of unit offerings of debt securities
which include such securities or in connection with an actual or proposed
conversion or exchange of debt securities. The Fund will treat investments
acquired in this manner, together with any holdings of convertible securities,
as debt securities for purposes of its policy to invest at least 65% of its
total assets, under normal circumstances, in high yield debt securities. The
Fund may also purchase equity securities not associated with debt securities
when, in the opinion of the investment manager, such purchase is appropriate.
Higher Quality Debt Securities and Money Market Instruments. There may be
times when, in the judgment of SBAM, conditions in the securities markets
would make pursuing the Fund's basic investment strategy inconsistent with the
best interests of the Fund's shareholders. At such times, SBAM may employ
alternative strategies, including investment of a substantial portion of the
Fund's assets in securities rated higher than "Baa" by Moody's or "BBB" by
S&P, or in unrated securities of comparable quality. In addition, in order to
maintain liquidity, the Fund may invest up to 35% of its total assets in high-
quality short-term money market instruments. Such instruments may include
obligations of the U.S. Government or its agencies or instrumentalities;
commercial paper of issuers rated, at the time of purchase, A-2 or better by
S&P or P-2 or better by Moody's or which, in the opinion of SBAM, are of
comparable creditworthiness; certificates of deposit, banker's acceptances or
time deposits of United States banks with total assets of at least $1 billion
(including obligations of foreign branches of such banks) and of the 75
largest foreign commercial banks in terms of total assets (including domestic
branches of such banks); and repurchase agreements with respect to the
foregoing obligations.
If at some future date, in the opinion of SBAM, adverse conditions prevail
in the securities markets which makes the Fund's investment strategy
inconsistent with the best interests of the Fund's shareholders, the Fund may
invest its assets without limit in high-quality short-term money market
instruments.
---------------------
The Fund's investment objectives, together with the investment restrictions
set forth under "Investment Restrictions," are fundamental policies that may
not be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities. The other policies and investment restrictions
referred to in this Prospectus are not fundamental and may be changed by the
Board of Directors of the Fund without shareholder approval. As used in this
Prospectus, a "majority of the Fund's outstanding voting securities" means the
lesser of (i) 67% or more of the voting securities represented at a meeting at
which more than 50% of the outstanding voting securities are represented or
(ii) more than 50% of the outstanding voting securities.
ADDITIONAL INVESTMENT ACTIVITIES
LEVERAGE
At times, the Fund intends to utilize leverage by borrowing (including
borrowing through reverse repurchase agreements to the extent the Fund does
not maintain a segregated account with respect to a reverse repurchase
agreement as described below) or by issuing shares of preferred stock or debt
securities. The Fund may leverage
26
<PAGE>
in an amount up to 33 1/3% of its total assets including the amount obtained
from leverage. The Fund intends to utilize leverage in an initial amount equal
to approximately 25% of its total assets including the amount obtained from
leverage. SBAM anticipates that the interest payments on any borrowing or debt
securities or the dividends on any preferred stock will reflect short-term
rates, and that the net return on the Fund's portfolio, including the proceeds
of any leverage, will exceed the interest or dividend rate applicable to the
leverage, although no assurance can be given to that effect. Whether to
leverage and the terms and timing of such leverage will be determined by the
Fund's Board of Directors in consultation with SBAM. The extent to which the
Fund is leveraged from time to time will vary depending on the judgment of the
Board of Directors, in consultation with SBAM, regarding market conditions.
Through these leveraging techniques, the Fund will seek to obtain a higher
return for holders of Common Stock than if the Fund were not leveraged. There
can be no assurance, however, that the Fund will engage in any leveraging
techniques. During periods in which the Fund is utilizing financial leverage,
the fees which are payable to SBAM and the Administrator as a percentage of
the Fund's assets will be higher than if the Fund did not utilize a leveraged
capital structure because the fees are calculated as a percentage of the
Fund's assets, including those purchased with leverage. See "Management of the
Fund."
Utilization of leverage is a speculative investment technique and involves
certain risks to the holders of Common Stock. These include the possibility of
higher volatility of the net asset value of the Common Stock and potentially
more volatility in the market value of the Common Stock. So long as the Fund
is able to realize a higher net return on its investment portfolio than the
then current interest or dividend rate of any leverage together with other
related expenses, the effect of the leverage will be to cause holders of
Common Stock to realize a higher current net investment income than if the
Fund were not so leveraged. On the other hand, to the extent that the then
current interest or dividend rate on any leverage, together with other related
expenses, approaches the net return on the Fund's investment portfolio, the
benefit of leverage to holders of Common Stock will be reduced, and if the
then current interest or dividend rate on any leverage were to exceed the net
return on the Fund's portfolio, the Fund's leveraged capital structure would
result in a lower rate of return to holders of Common Stock than if the Fund
were not so leveraged. Similarly, since any decline in the net asset value of
the Fund's investments will be borne entirely by holders of Common Stock, the
effect of leverage in a declining market would be a greater decrease in net
asset value applicable to the Common Stock than if the Fund were not
leveraged. Any such decrease would likely be reflected in a decline in the
market price of the Common Stock. If the Fund's current investment income were
not sufficient to meet interest or dividend requirements on any leverage, it
could be necessary for the Fund to liquidate certain of its investments,
thereby reducing the net asset value attributable to the Common Stock.
It is the Fund's current intention to seek to limit the possibility that its
cost of leverage will adversely affect its net income during a rising interest
rate environment by investing a portion of its total assets in high yield debt
securities with floating interest rates determined with reference to the
short-term London Inter-Bank Offer Rate. SBAM anticipates that the Fund's cost
of borrowing or other leverage will similarly be tied to short-term interest
rates. Under current market conditions, the Fund expects that the aggregate
face amount of its investments in such floating rate securities will be
approximately equal to the aggregate face amount of the Fund's borrowings or
other proceeds of leverage. This strategy is commonly referred to as "matched
book funding." SBAM therefore expects that the relationship between the
interest income received by the Fund on the aforementioned floating rate
securities and the interest or dividend expense of the Fund relating to
borrowing or other leverage will generally remain stable and that changes in
the Fund's cost of borrowing or other leverage
27
<PAGE>
will be offset to a substantial degree by similar changes in the interest
income received on such floating rate securities. However, there can be no
assurance that such offsetting will occur or that SBAM will utilize a "matched
book funding" strategy at all times. The utilization of a "matched book
funding" strategy will also limit the ability of the Fund to lock in higher
yields during a falling interest rate environment.
The Fund's use of leverage will be subject to the provisions of the 1940
Act, including asset coverage requirements and restrictions on the declaration
of dividends and distributions to holders of Common Stock or purchases of
Common Stock in the event such asset coverage requirements are not met. The
1940 Act also requires that holders of preferred stock, and in certain
circumstances holders of debt securities, have certain voting rights. See
"Description of Capital Stock."
The Fund may apply for a rating from Moody's, S&P and/or any other
nationally recognized statistical rating organization on any preferred stock
or debt which it issues; however, no minimum rating is required for the
issuance of preferred stock or debt by the Fund. The Fund believes that
obtaining one or more such ratings for its preferred stock or debt securities
will enhance the marketability of the preferred stock or debt securities and
thereby reduce the dividend rate on such preferred stock or interest
requirements on such debt securities from that which the Fund would be
required to pay if the preferred stock or debt securities were not so rated.
The rating agencies for any preferred stock or debt securities may require
asset coverage maintenance ratios in addition to those imposed by the 1940
Act. The ability of the Fund to comply with such asset coverage maintenance
ratios may be subject to circumstances beyond the control of the Fund such as
market conditions for its portfolio securities. The Fund expects that the
terms of any preferred stock or debt securities will provide for mandatory
redemption of the preferred stock or repayment of debt in the event the Fund
fails to meet such asset coverage maintenance ratios. In such circumstances,
the Fund may have to liquidate portfolio securities in order to meet
redemption or repayment requirements. Such liquidations and redemptions would
cause the Fund to incur transaction costs and could result in capital losses
to the Fund. This would have the effect of reducing the net asset value to
holders of Common Stock and could reduce the Fund's net income in the future.
The issuance of preferred stock or debt will entail certain initial costs
and expenses such as underwriting discounts or placement fees, fees associated
with registration with the Commission, filings under state securities laws,
rating agency fees, legal and accounting fees, printing costs and certain
other ongoing expenses such as administrative and accounting fees. These costs
and expenses will be borne by the Fund and will reduce net assets available to
holders of the Common Stock.
The Fund expects that all of its bank borrowing will be made on a secured
basis. The Fund's custodian will either segregate the assets securing the
Fund's borrowing for the benefit of the Fund's lenders or arrangements will be
made with a suitable sub-custodian, which may include a lender. If the assets
used to secure the borrowing decrease in value, the Fund may be required to
pledge additional collateral to the lender in the form of cash or securities
to avoid liquidation of those assets.
The rights of any lenders to the Fund to receive payments of interest on and
repayments of principal of borrowings (including debt securities) will be
senior to the rights of the Fund's shareholders, and the terms of the Fund's
borrowings (including debt securities) may contain provisions that limit
certain activities of the Fund and could result in precluding the purchase of
instruments that the Fund would otherwise purchase.
28
<PAGE>
If the Fund leverages through preferred stock, under the requirements of the
1940 Act, the value of the Fund's total assets, less all liabilities and
indebtedness of the Fund not represented by senior securities, as defined in
the 1940 Act, must be equal, immediately after any such issuance of preferred
stock, to at least 200% of the aggregate amount of senior securities
representing indebtedness plus the aggregate liquidation preference of any
outstanding preferred stock. Such percentage must also be met any time the
Fund pays a dividend or makes any other distribution on Common Stock (other
than a distribution in Common Stock) or any time the Fund repurchases Common
Stock, in each case after giving effect to such dividend, distribution or
repurchase. The liquidation value of preferred stock is expected to equal the
aggregate original purchase price plus any accrued and unpaid dividends
thereon (whether or not earned or declared). See "Description of Capital
Stock."
If the Fund leverages through borrowing or issuing debt securities, under
the requirements of the 1940 Act, the value of the Fund's total assets, less
all liabilities and indebtedness of the Fund not represented by senior
securities, as defined in the 1940 Act, must at least be equal, immediately
after the issuance of senior securities consisting of debt, to 300% of the
aggregate principal amount of all outstanding senior securities of the Fund
which are debt. If the Fund leverages through the issuance of senior
securities consisting of debt, the 300% asset coverage maintenance ratio
referred to above must also be met any time the Fund declares a dividend or
other distribution on Common Stock (other than a distribution in Common Stock)
or any time the Fund repurchases Common Stock, in each case after giving
effect to such dividend, distribution or repurchase.
The Fund may enter into reverse repurchase agreements with any member bank
of the Federal Reserve System and any broker-dealer or any foreign bank that
has been determined by SBAM to be creditworthy. Under a reverse repurchase
agreement, the Fund would sell securities and agree to repurchase them at a
mutually agreed date and price. At the time the Fund enters into a reverse
repurchase agreement, it will establish and maintain a segregated account,
with its custodian or a designated sub-custodian, containing liquid assets in
an amount not less than the repurchase price marked to market daily (including
accrued interest), and will subsequently review the account to ensure that
such equivalent value is maintained, in accordance with procedures established
by the Board of Directors. Reverse repurchase agreements involve the risk that
the market value of the securities purchased with the proceeds of the sale of
securities received by the Fund may decline below the price of the securities
the Fund is obligated to repurchase. In the event the buyer of securities
under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the buyer or its trustee or receiver may receive an extension of
time to determine whether to enforce the Fund's obligations to repurchase the
securities, and the Fund's use of proceeds of the reverse repurchase agreement
effectively may be restricted pending the decision. Reverse repurchase
agreements will be treated as borrowings for purposes of calculating the
Fund's borrowing limitation to the extent the Fund does not establish and
maintain a segregated account (as described above).
Assuming the utilization of leverage in the amount of approximately 25% of
the Fund's total assets, and an annual interest rate of 6.21% payable on such
leverage based on market rates as of the date of this Prospectus, the annual
return that the Fund's portfolio must experience (net of expenses) in order to
cover such interest payments would be 2.07%. The Fund's actual cost of
leverage will be based on market rates at the time the Fund undertakes a
leveraging strategy, and such actual cost of leverage may be higher or lower
than that assumed in the previous example.
The following table is designed to illustrate the effect on the return to a
holder of the Fund's Common Stock of leverage in the amount of approximately
25% of the Fund's total assets, assuming hypothetical annual returns of the
Fund's portfolio of minus 10% to plus 10%. As the table shows, leverage
generally increases the return to
29
<PAGE>
shareholders when portfolio return is positive and greater than the cost of
leverage and decreases the return when the portfolio return is negative or
less than the cost of leverage. The figures appearing in the table are
hypothetical and actual returns may be greater or less than those appearing in
the table.
<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed Portfolio Return (net of
expenses).............................. (10)% (5)% 0 % 5% 10%
Corresponding Common Stock Return
Assuming 25% Leverage.................. (15.40)% (8.74)% (2.07)% 4.60% 11.26%
</TABLE>
Until the Fund borrows (including issuing debt securities) or issues shares
of preferred stock, the Fund's Common Stock will not be leveraged, and the
risks and special considerations related to leverage described in this
Prospectus will not apply. Such leveraging of the Common Stock cannot be fully
achieved until the proceeds resulting from the use of leverage have been
invested in debt instruments in accordance with the Fund's investment
objectives and policies.
The Fund may, in addition to engaging in the transactions described above,
borrow money for temporary or emergency purposes (including, for example,
clearance of transactions, share repurchases or payments of dividends to
shareholders) in an amount not exceeding 5% of the value of the Fund's total
assets (including the amount borrowed).
DERIVATIVE INSTRUMENTS
The Fund may from time to time engage in certain strategies generally for
hedging or other risk management purposes or in furtherance of the Fund's
investment objectives and policies. The Fund may use these strategies to
attempt to protect against possible changes in the market value of the Fund's
portfolio resulting from fluctuations in the securities markets and changes in
interest rates or in exchange rates, to protect the Fund's unrealized gains in
the value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, to establish a position in the securities
markets as a temporary substitute for purchasing particular securities, to
seek to enhance income or gain or to attempt to achieve the economic
equivalent of floating rate interest payments on fixed-rate debt securities it
holds. The Fund will engage in such activities from time to time in SBAM's
discretion, and may not necessarily be engaging in such activities when
movements occur in interest rates or in the securities markets generally that
could affect the value of the assets of the Fund. The Fund's ability to pursue
certain of these strategies may be limited by applicable regulations of the
Commodity Futures Trading Commission ("CFTC") and the federal income tax
requirements applicable to regulated investment companies.
As part of its strategies, the Fund may purchase and sell futures contracts,
purchase and sell (or write) exchange-listed and over-the-counter put and call
options on securities, financial indices and futures contracts, enter into the
interest rate and currency transactions discussed below and enter into other
similar transactions which may be developed in the future to the extent SBAM
determines that they are consistent with the Fund's investment objectives and
policies and applicable regulatory requirements (collectively, "Derivative
Transactions"). The Fund may use any or all of these techniques at any time,
and the use of any particular Derivative Transaction will depend on market
conditions. The Derivative Transactions that the Fund may use are described
below.
Derivative Transactions present certain risks. In particular, the variable
degree of correlation between price movements of instruments the Fund has
purchased or sold and price movements in the position being hedged creates the
possibility that losses on the hedge may be greater than gains in the value of
the Fund's position. In
30
<PAGE>
addition, certain derivative instruments and markets may not be liquid in all
circumstances. As a result, in volatile markets, the Fund may not be able to
close out a transaction without incurring losses substantially greater than
the initial deposit. Although the contemplated use of these instruments should
tend to minimize the risk of loss due to a decline in the value of the hedged
position, at the same time they may tend to limit any potential gain which
might result from an increase in the value of such position.
Successful use of Derivative Transactions by the Fund is subject to the
ability of SBAM to predict correctly movements in the direction of interest
rates and other factors affecting markets for securities. These skills are
different from those needed to select portfolio securities. If SBAM's
expectations are not met, the Fund would be in a worse position than if a
Derivative Transaction had not been pursued. For example, if the Fund hedged
against the possibility of an increase in interest rates which would adversely
affect the price of securities in its portfolio and the price of such
securities increased instead, the Fund would lose part or all of the benefit
of the increased value of its securities because it would have offsetting
losses in its futures positions. Losses due to Derivative Transactions will
reduce net asset value.
A detailed discussion of Derivative Transactions, including applicable
requirements of the CFTC, the requirement to segregate assets with respect to
these transactions and special risks associated with such strategies appears
as Appendix B to this Prospectus.
Interest Rate Transactions. The Fund may enter into interest rate swaps and
may purchase interest rate caps, floors and collars and may sell interest rate
caps, floors and collars that it has purchased. The Fund would enter into
these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to manage the duration of its
portfolio or to protect against any increase in the price of securities the
Fund anticipates purchasing at a later date.
The Fund may enter into interest rate swaps, caps, floors and collars on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or liabilities. The Fund will not enter into any interest
rate swap, cap, floor or collar transaction unless SBAM deems the counterparty
to be creditworthy at the time of entering into such transaction. If there is
a default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, floors and collars are more recent innovations
for which standardized documentation has not yet been developed and,
accordingly, they are less liquid than swaps.
Futures Contracts and Options on Futures Contracts. The Fund may also enter
into (a) contracts for the purchase or sale for future delivery ("futures
contracts") of debt securities, aggregates of securities, indices based upon
the prices thereof and other financial indices and (b) put or call options on
such futures contracts. When the Fund enters into a futures contract, it must
allocate cash or securities as a deposit of initial margin and thereafter will
be required to pay or will be entitled to receive variation margin in an
amount equal to any change in the value of the contract since the preceding
day. If the value of a futures contract the Fund has entered into moves in an
adverse direction from the Fund's position, the Fund could be obligated to
make payments of variation margin at a disadvantageous time and might be
required to liquidate portfolio securities in order to make such margin
payments. Transactions in listed futures contracts and options on futures
contracts are usually settled by entering into an offsetting transaction, and
are subject to the risk that the position may not be able to
31
<PAGE>
be closed if no offsetting transaction can be arranged. Except for
transactions for which the sum of the premiums on options contracts and the
initial margin for futures contracts does not exceed 5% of the net liquidation
value of the Fund's assets, the Fund will engage in such transactions only for
bona fide hedging purposes, in each case, in accordance with the rules and
regulations of the CFTC. To the extent that the Fund engages in transactions
in futures contracts or options thereon in order to attempt to achieve the
economic equivalent of floating rate interest payments with respect to fixed
rate interest payments on fixed rate debt securities it holds, such
transactions will not be considered to be undertaken for bona fide hedging
purposes.
Put and Call Options on Securities and Indices of Securities. In order to
reduce fluctuations in net asset value or to seek to enhance the Fund's income
or gain, the Fund may purchase or sell exchange-traded or over-the-counter put
or call options on securities and indices based upon the prices, yields or
spreads of securities. A call option sold by the Fund exposes the Fund during
the term of the option to possible loss of opportunity to realize appreciation
in the market price of the underlying security or securities index and may
require the Fund to hold an instrument which it might otherwise have sold. In
selling put options, the Fund incurs the risk that it may be required to buy
the underlying securities at a price higher than the current market price of
the securities. In buying put or call options, the Fund is exposed to the risk
that such options may expire worthless.
Currency Transactions. The Fund may engage in currency transactions with
counterparties to hedge the value of portfolio securities denominated in
particular currencies against fluctuations in relative value or to generate
income or gain. Currency transactions include currency forward contracts,
exchange-listed currency futures contracts and options thereon, exchange-
listed and OTC options on currencies, and currency swaps. A forward currency
contract involves a privately negotiated obligation to purchase or sell (with
delivery generally required) a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. A currency swap is an
agreement to exchange cash flows based on the notional difference among two or
more currencies and operates similarly to an interest rate swap, which is
described under "--Interest Rate Transactions." The Fund may enter into
currency transactions with counterparties that the investment manager deems to
be creditworthy.
Segregation and Cover Requirements. Futures contracts, interest rate swaps,
caps, floors and collars, and options on securities, indices and futures
contracts sold by the Fund are generally subject to segregation and coverage
requirements of either the CFTC or the Commission. If the Fund does not hold
the security or futures contract underlying the instrument, the Fund will be
required to segregate on an ongoing basis with its custodian liquid assets in
an amount at least equal to the current amount of the Fund's obligations with
respect to such instruments in accordance with procedures established by the
Board of Directors. Such amounts fluctuate as the obligations increase or
decrease. The segregation requirement can result in the Fund maintaining
securities positions it would otherwise liquidate or segregating assets at a
time when it might be disadvantageous to do so.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements for cash management purposes.
A repurchase agreement is a transaction in which the seller of a security
commits itself at the time of the sale to repurchase that security from the
buyer at a mutually agreed upon time and price. The Fund will enter into
repurchase agreements only with dealers, domestic banks or recognized
financial institutions which, in the opinion of SBAM based on guidelines
established by the Fund's Board of Directors, are deemed creditworthy. SBAM
will monitor the value
32
<PAGE>
of the securities underlying the repurchase agreement at the time the
transaction is entered into and at all times during the term of the repurchase
agreement to ensure that the value of the securities always exceeds the
repurchase price. In the event of default by the seller under the repurchase
agreement, the Fund may incur losses and experience time delays in connection
with the disposition of the underlying securities. To the extent that, in the
meantime, the value of the securities that the Fund has purchased has
decreased, the Fund could experience a loss.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed delivery basis.
Securities purchased on a when-issued or delayed delivery basis are purchased
for delivery beyond the normal settlement date at a stated price and yield. No
income accrues to the purchaser of a security on a when-issued or delayed
delivery basis prior to delivery. Such securities are recorded as an asset and
are subject to changes in value based upon changes in the general level of
interest rates. Purchasing a security on a when-issued or delayed delivery
basis can involve a risk that the market price at the time of delivery may be
lower than the agreed-upon purchase price, in which case there could be an
unrealized loss at the time of delivery. The Fund will only make commitments
to purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities but may sell them before the
settlement date if it is deemed advisable. The Fund will establish a
segregated account in which it will maintain liquid assets in an amount at
least equal in value to the Fund's commitments to purchase securities on a
when-issued or delayed delivery basis. If the value of these assets declines,
the Fund will place additional liquid assets in the account on a daily basis
so that the value of the assets in the account is equal to the amount of such
commitments. As an alternative, the Fund may elect to treat when-issued or
delayed delivery securities as senior securities representing indebtedness,
which are subject to asset coverage requirements under the 1940 Act.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend portfolio securities. By doing so, the Fund will attempt
to increase its income through the receipt of interest on the loan. In the
event of the bankruptcy of the other party to either a securities loan or a
repurchase agreement, the Fund could experience delays in recovering either
the securities it lent or its cash. To the extent that, in the meantime, the
value of the securities the Fund lent has increased or the value of the
securities it purchased has decreased, the Fund could experience a loss.
The Fund may lend securities from its portfolio if liquid assets in an
amount at least equal to the current market value of the securities loaned
(including accrued interest thereon) plus the interest payable to the Fund
with respect to the loan is maintained by the Fund in a segregated account.
Any securities that the Fund may receive as collateral will not become a part
of its portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund will, if permitted by law, dispose of such collateral
except for such part thereof that is a security in which the Fund is permitted
to invest. During the time securities are on loan, the borrower will pay the
Fund any accrued income on those securities, and the Fund may invest the cash
collateral and earn additional income or receive an agreed-upon fee from a
borrower that has delivered cash equivalent collateral. Cash collateral
received by the Fund will be invested in securities in which the Fund is
permitted to invest. The value of securities loaned will be marked to market
daily. Portfolio securities purchased with cash collateral are subject to
possible depreciation. Loans of securities by the Fund will be subject to
termination at the Fund's or the
33
<PAGE>
borrower's option. The Fund may pay reasonable negotiated fees in connection
with loaned securities, so long as such fees are set forth in a written
contract and approved by the Fund's Board of Directors. The Fund does not
currently intend to make loans of portfolio securities with a value in excess
of 33 1/3% of the value of its total assets.
ILLIQUID OR RESTRICTED SECURITIES
The Fund may invest without limitation in illiquid securities, for which
there is a limited trading market and for which a low trading volume of a
particular security may result in abrupt and erratic price movements. The Fund
may be unable to dispose of its holdings in illiquid securities at then
current market prices and may have to dispose of such securities over extended
periods of time.
Certain securities in which the Fund may invest are subject to legal or
contractual restrictions as to resale ("Restricted Securities") and may
therefore be illiquid by their terms. Restricted Securities may involve added
expense to the Fund should the Fund be required to bear registration costs
with respect to such securities. In the absence of registration, the Fund
would have to dispose of its Restricted Securities pursuant to an exemption
from registration under the Securities Act of 1933, as amended (the
"Securities Act"), including a transaction in compliance with Rule 144 under
the Securities Act, which permits only limited sales under specified
conditions unless the Fund has held the securities for at least two years and
is unaffiliated with the issuer. Companies whose securities are not publicly
traded are also not subject to the same disclosure and other legal
requirements as are applicable to companies with publicly traded securities.
The Fund may purchase certain Restricted Securities ("Rule 144A securities")
eligible for sale to qualified institutional buyers as contemplated by Rule
144A under the Securities Act. Rule 144A provides an exemption from the
registration requirements of the Securities Act for the resale of certain
restricted securities to certain qualified institutional buyers. One effect of
Rule 144A is that certain restricted securities may be liquid, though no
assurance can be given that a liquid market for Rule 144A securities will
develop or be maintained.
INVESTMENT RESTRICTIONS
The following restrictions, along with the Fund's investment objectives, are
the Fund's only fundamental policies--that is, policies that cannot be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities. See "Description of Capital Stock--Preferred Stock" and
"Description of Capital Stock--Special Voting Provisions" for additional
information with respect to the voting rights of holders of preferred stock,
if any. The other policies and investment restrictions referred to in this
Prospectus are not fundamental policies of the Fund and may be changed by the
Fund's Board of Directors without shareholder approval. The percentage
restrictions set forth below, as well as those contained elsewhere in this
Prospectus, apply at the time a transaction is effected, and a subsequent
change in a percentage resulting from market fluctuations or any other cause
other than an action by the Fund will not require the Fund to dispose of
portfolio securities or take other action to satisfy the percentage
restriction. Under its fundamental restrictions, the Fund may not:
(1) purchase any securities which would cause more than 25% of the value of
its total assets at the time of such purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that there is no limitation with respect to investment in
obligations issued or
34
<PAGE>
guaranteed by the U.S. Government, its agencies or instrumentalities or
repurchase agreements collateralized by any of such obligations;
(2) make any investment inconsistent with the Fund's classification as a
diversified company under the 1940 Act;
(3) issue senior securities or borrow money except as permitted by Section
18 of the 1940 Act;
(4) purchase or sell commodities or commodity contracts, except that the
Fund may engage in Derivative Transactions;
(5) make loans, except that (1) the Fund may (a) purchase and hold debt
instruments (including, without limitation, commercial paper notes, bonds,
debentures or other secured or unsecured obligations and certificates of
deposit, bankers' acceptances and fixed time deposits) in accordance with its
investment objectives and policies; (b) invest in or purchase loans through
Participations and Assignments; (c) enter into repurchase agreements with
respect to portfolio securities; (d) make loans of portfolio securities,
provided that collateral arrangements with respect to options, forward
currency and futures transactions will not be deemed to involve loans; and (2)
delays in the settlement of securities transactions shall not be considered
loans;
(6) underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, it may be deemed
to be an underwriter;
(7) purchase real estate, real estate mortgage loans or real estate limited
partnership interests (other than securities secured by real estate or
interests therein or securities issued by companies that invest in real estate
or interests therein, including real estate investment trusts); or
(8) invest for the purpose of exercising control over management of any
company.
Additional investment restrictions adopted by the Fund, which are deemed
non-fundamental and which may be changed by the Board of Directors, provide
that the Fund may not:
(1) purchase shares of other investment companies in an amount exceeding the
limits set forth in the 1940 Act and the rules thereunder; or
(2) make short sales of securities or purchase securities on margin (except
for delayed delivery or when-issued transactions, such short-term credits as
are necessary for the clearance of transactions and margin deposits in
connection with transactions in futures contracts, options on futures
contracts and options on securities and securities indices).
MANAGEMENT OF THE FUND
INVESTMENT MANAGER
The Fund retains SBAM, a wholly-owned subsidiary of Salomon Brothers Holding
Company Inc; which is in turn wholly-owned by Salomon Smith Barney Holdings
Inc.; which is in turn wholly-owned by Travelers Group Inc., as its investment
manager under an investment management agreement. SBAM was incorporated in
1987 and, together with affiliates in London, Frankfurt, Tokyo and Hong Kong,
provides a broad range of fixed-
35
<PAGE>
income and equity investment advisory services to various individuals and over
134 institutional accounts located throughout the world and serves as
investment adviser to various investment companies. In providing advisory
services, SBAM has access to hundreds of affiliated economists and bond,
sovereign and equity analysts, including an extensive staff dedicated to high
yield credit research and to emerging markets sovereign credit research. As of
March 31, 1998, SBAM and its worldwide investment advisory affiliates managed
approximately $27.6 billion of assets. SBAM's business offices are located at
7 World Trade Center, New York, New York 10048.
Under the terms of an investment management agreement between the Fund and
SBAM (the "Advisory Agreement"), SBAM will manage the investment and
reinvestment of the assets of the Fund, subject to the supervision of the
Fund's Board of Directors. SBAM will make the investment decisions for the
Fund and place purchase and sale orders for the Fund's portfolio securities
pursuant to the Advisory Agreement. In addition, SBAM will make available
research and statistical data to the Fund. Peter J. Wilby, Executive Vice
President of the Fund, will be primarily responsible for the day-to-day
management of the Fund's portfolio. Mr. Wilby, who joined SBAM in 1989, is a
Managing Director and Senior Portfolio Manager of SBAM and is responsible for
SBAM's investment company and institutional portfolios which invest in high
yield foreign sovereign debt securities and high yield foreign and U.S.
corporate debt securities. Mr. Wilby is portfolio manager for, among others,
Salomon Brothers High Income Fund Inc; Salomon Brothers Worldwide Income Fund
Inc; The Emerging Markets Income Fund Inc; The Emerging Markets Income Fund II
Inc; the foreign sovereign debt component of Salomon Brothers 2008 Worldwide
Dollar Government Term Trust Inc; The Emerging Markets Floating Rate Fund
Inc.; Global Partners Income Fund Inc.; Salomon Brothers High Yield Bond Fund
and the high yield and sovereign debt portions of Salomon Brothers Strategic
Bond Fund, each a portfolio of Salomon Brothers Series Funds Inc; Salomon
Brothers Institutional High Yield Bond Fund and Salomon Brothers Institutional
Emerging Markets Debt Fund, each a portfolio of Salomon Brothers Institutional
Series Funds Inc; and Salomon Brothers Variable High Yield Bond Fund and the
high yield and sovereign bond portions of Salomon Brothers Variable Strategic
Bond Fund, each a portfolio of Salomon Brothers Variable Series Funds Inc.
From 1984 to 1989, Mr. Wilby was employed by Prudential Capital Management
Group ("PCMG"). He served as director of PCMG's credit research unit and as a
corporate and sovereign credit analyst with PCMG. Mr. Wilby later managed high
yield bonds and leveraged equities in mutual funds and institutional
portfolios at PCMG.
SBAM will pay the reasonable salaries and expenses of such of the Fund's
officers and employees and any fees and expenses of such of the Fund's
directors who are directors, officers or employees of SBAM or Salomon Smith
Barney, except that the Fund shall bear travel expenses or an appropriate
portion thereof of directors and officers of the Fund who are directors,
officers or employees of SBAM to the extent that such expenses relate to the
attendance at meetings of the Fund's Board of Directors or any committees
thereof. The Advisory Agreement provides that SBAM may render similar
investment management services to others. For its services, SBAM will receive
from the Fund a monthly fee at an annual rate of 1.00% of the value of the
Fund's average weekly net assets plus the proceeds of any outstanding
borrowings used for leverage ("average weekly net assets" means the average
weekly value of the total assets of the Fund, including any proceeds from the
issuance of preferred stock, minus the sum of (i) accrued liabilities of the
Fund, (ii) any accrued and unpaid interest on outstanding borrowings and (iii)
accumulated dividends on shares of preferred stock). For purposes of this
calculation, average weekly net assets is determined at the end of each month
on the basis of the average net assets of the Fund for each week during the
month. The assets for each weekly period are determined by averaging the net
36
<PAGE>
assets at the last business day of a week with the net assets at the last
business day of the prior week. The advisory fee is higher than fees paid by
other comparable investment companies. During periods in which the Fund is
utilizing financial leverage, the fee which is payable to SBAM as a percentage
of the Fund's assets will be higher than if the Fund did not utilize a
leveraged capital structure because the fee is calculated as a percentage of
the Fund's assets, including those purchased with leverage.
Unless earlier terminated as described below, the Advisory Agreement will
remain in effect for two years from the date of this Prospectus and from year
to year thereafter if it is approved annually (i) by a majority of the non-
interested directors of the Fund and (ii) by the Board of Directors of the
Fund or by a majority of the Fund's outstanding voting securities. The
Advisory Agreement may be terminated without penalty on 60 days' written
notice by either party thereto or by a vote of a majority of the Fund's
outstanding voting securities and will terminate in the event of its
assignment (as defined in the 1940 Act). In case of termination or failure to
renew the Advisory Agreement, the Fund's Board of Directors will select a
successor investment adviser. Any such successor will be a registered
investment adviser under U.S. law.
On April 6, 1998, Travelers Group Inc. ("Travelers") announced that it had
entered into a Merger Agreement with Citicorp. The transaction, which is
expected to be completed during the third quarter of 1998, is subject to
various regulatory approvals, including approval by the Federal Reserve Board.
The transaction is also subject to approval by the stockholders of each of
Travelers and Citicorp. Upon consummation of the merger, the surviving
corporation would be a bank holding company subject to regulation under the
Bank Holding Company Act of 1956 (the "BHCA"), the requirements of the Glass-
Steagall Act and certain other laws and regulations. Although the effects of
the merger of Travelers and Citicorp and compliance with the requirements of
the BHCA and the Glass-Steagall Act are still under review, SBAM does not
believe that its compliance with applicable law following the merger of
Travelers and Citicorp will have a material adverse effect on its ability to
provide the Fund with SBAM's customary level of investment advisory services.
ADMINISTRATOR
Mutual Management Corp., a wholly-owned subsidiary of Salomon Smith Barney
Holdings Inc., will act as administrator for the Fund. Under the
Administration Agreement with the Fund (the "Administration Agreement"), the
Administrator administers the Fund's corporate affairs subject to the
supervision of the Fund's Board of Directors and in connection therewith
furnishes the Fund with office facilities together with such ordinary clerical
and bookkeeping services (e.g., preparation of annual and other reports to
shareholders and the Commission and filing of federal, state and local income
tax returns) as are not being furnished by SBAM or the Fund's custodian. In
connection with its administration of the corporate affairs of the Fund, the
Administrator will bear the expenses of the salaries and expenses of all of
its personnel and all expenses incurred by the Administrator or by the Fund in
connection with administering the ordinary course of the Fund's business,
other than those assumed by the Fund, as described below. The Administration
Agreement provides that the Fund shall pay to the Administrator a monthly fee
for its services and the facilities furnished by the Administrator at an
annual rate of .10% of the value of the Fund's average weekly net assets (as
defined and determined with respect to the Advisory Agreement) plus the
proceeds of any outstanding borrowings used for leverage. The Administration
Agreement was approved by the Fund's Board of Directors on April 23, 1998 and
will remain in effect for two years from the date of this Prospectus and from
year to year thereafter if it is approved annually by the Board of Directors
of the Fund. The Administration Agreement is terminable, without penalty, on
60 days'
37
<PAGE>
written notice by the Board of Directors or by a vote of holders of a majority
of the Fund's shares, or upon 90 days' written notice by the Administrator.
During periods in which the Fund is utilizing financial leverage, the fee
which is payable to the Administrator as a percentage of the Fund's assets
will be higher than if the Fund did not utilize a leveraged capital structure
because the fee is calculated as a percentage of the Fund's assets, including
those purchased with leverage.
EXPENSES OF THE FUND
Except as indicated above, the Fund will pay all of its expenses, including,
without limitation, organizational and offering expenses (which include out-
of-pocket expenses, but not overhead or employee costs of SBAM); expenses for
legal, accounting and auditing services; taxes and governmental fees; dues and
expenses incurred in connection with membership in investment company
organizations; fees and expenses incurred in connection with listing the
Fund's shares on any stock exchange; costs of printing and distributing
shareholder reports, proxy materials, prospectuses, stock certificates and
distribution of dividends; charges of the Fund's custodians, sub-custodians,
administrators and sub-administrators, registrars, transfer agents, dividend
disbursing agents and dividend reinvestment plan agents; payment for portfolio
pricing services to a pricing agent, if any; fees of the Commission; expenses
of registering or qualifying securities of the Fund for sale; freight and
other charges in connection with the shipment of the Fund's portfolio
securities; fees and expenses of non-interested directors; travel expenses or
an appropriate portion thereof of directors and officers of the Fund who are
directors, officers or employees of SBAM to the extent that such expenses
relate to attendance at meetings of the Board of Directors or any committee
thereof; salaries of shareholder relations personnel; costs of shareholders
meetings; insurance; interest; brokerage costs; litigation and other
extraordinary or non-recurring expenses.
DIRECTORS AND OFFICERS
The names of the directors and principal officers of the Fund are set forth
below, together with their positions and their principal occupations during
the past five years.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND
NAME, ADDRESS AND AGE POSITION WITH THE FUND OTHER AFFILIATIONS
--------------------- ------------------------ ------------------------
<C> <C> <S>
*Heath B. McLendon.......... Chairman of the Board of Managing Director,
Salomon Smith Barney Directors and President Salomon Smith Barney;
388 Greenwich Street, 22nd Director of 42
Fl. investment companies
New York, NY 10013 associated with Salomon
Age: 64 Smith Barney; Director
and President of Mutual
Management Corp. and
Travelers Investment
Adviser, Inc.; Chairman
of Smith Barney Strategy
Advisers Inc. Prior to
July 1993, Senior
Executive Vice President
of Shearson Lehman
Brothers, Inc. and Vice
Chairman, Shearson Asset
Management.
</TABLE>
- ------------
* Director who is an "interested person" within the meaning of the 1940 Act.
38
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH THE FUND PRINCIPAL OCCUPATION AND OTHER AFFILIATIONS
--------------------- ------------------------- -------------------------------------------
<C> <C> <S>
Charles F. Barber............ Director Consultant, formerly Chairman
66 Glenwood Drive of the Board, ASARCO
Greenwich, CT 06830 Incorporated.
Age: 81
Daniel P. Cronin............. Director Vice President and General
Pfizer Inc. Counsel, Pfizer International
235 East 42nd Street Inc.; Senior Assistant General
New York, NY 10017 Counsel, Pfizer, Inc.
Age: 52
Dr. Riordan Roett............ Director Professor and Director, Latin
Johns Hopkins University American Studies Program, Paul
1740 Massachusetts H. Nitze School of Advanced
Avenue, NW International Studies, Johns
Washington D.C. 20036 Hopkins University.
Age: 59
Jeswald W. Salacuse.......... Director Henry J. Braker Professor of
220 Stone Route Lane Commercial Law and formerly
Concord, MA 01742 Dean, The Fletcher School of
Age: 60 Law and Diplomacy, Tufts
University.
Peter J. Wilby............... Executive Vice President Managing Director and Senior
Salomon Brothers Asset Portfolio Manager of SBAM since
Management Inc 1989.
Seven World Trade Center
New York, NY 10048
Age: 38
Christina T. Sydor, Esq...... Executive Vice President, Managing Director of Smith
Salomon Smith Barney General Counsel Barney Inc.; General Counsel
388 Greenwich Street and Secretary of Mutual
New York, NY 10013 Management Corp.; Secretary of
Age: 46 42 investment companies
associated with Salomon Smith
Barney.
Robert A. Vegliante, Esq. ... Executive Vice President, Director of Smith Barney Inc.;
Salomon Brothers Asset Associate General Counsel Deputy General Counsel of
Management Inc Mutual Management Corp. Prior
7 World Trade Center to 1994, Associate General
New York, NY 10048 Counsel of Connecticut Mutual
Age: 36 Life Insurance Company.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH THE FUND PRINCIPAL OCCUPATION AND OTHER AFFILIATIONS
--------------------- ------------------------ -------------------------------------------
<C> <C> <S>
Beth A. Semmel............... Executive Vice President Director of SBAM since January
Salomon Brothers Asset 1996. From May 1993 to December
Management Inc 1995, Vice President of SBAM. From
7 World Trade Center January 1989 to May 1993, Vice
New York, NY 10048 President of Morgan Stanley Asset
Age: 36 Management.
Maureen O'Callaghan.......... Executive Vice President Director of SBAM since January
Salomon Brothers Asset 1997. Vice President of SBAM from
Management Inc October 1988 to December 1996.
7 World Trade Center
New York, NY 10048
Age: 33
James E. Craige.............. Executive Vice President Director of SBAM since December
Salomon Brothers Asset 1997. Vice President of SBAM from
Management Inc 1992 to December 1997.
7 World Trade Center
New York, NY 10048
Age: 29
Thomas K. Flanagan........... Executive Vice President Director of SBAM since 1991.
Salomon Brothers Asset
Management Inc
7 World Trade Center
New York, NY 10048
Age: 44
Lewis E. Daidone............. Executive Vice President Managing Director of Smith Barney
Salomon Smith Barney Inc.; Director and Senior Vice
388 Greenwich Street President of Mutual Management
New York, NY 10013 Corp.; Senior Vice President and
Age: 40 Treasurer of 42 investment
companies associated with Salomon
Smith Barney.
Alan M. Mandel............... Treasurer and Chief Director of SBAM, 1995 to present.
Salomon Smith Barney Financial Officer Prior to 1995, Chief Financial
388 Greenwich Street Officer and Vice President of
New York, NY 10013 Hyperion Capital Management Inc.
Age: 40
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH THE FUND PRINCIPAL OCCUPATION AND OTHER AFFILIATIONS
--------------------- ---------------------- -------------------------------------------
<C> <C> <S>
Noel B. Daugherty........... Secretary Employee of SBAM since November 1996.
Salomon Brothers Asset From August 1993 to October 1996, an
Management Inc employee of Chancellor LGT Asset
7 World Trade Center Management. From October 1989 to
New York, NY 10048 August 1993, an employee of The
Age: 31 Dreyfus Corporation.
Anthony Pace................ Assistant Treasurer Assistant Controller of investment
Salomon Brothers Asset companies associated with Salomon
Management Inc Smith Barney; Assistant Treasurer of
7 World Trade Center investment companies advised by SBAM.
New York, NY 10048
Age: 33
</TABLE>
COMPENSATION TABLE
The following table provides estimated information concerning the
compensation expected to be paid during the current fiscal year ending April
30, 1999 to each director of the Fund and, for the calendar year ending
December 31, 1997, the aggregate compensation paid by all investment companies
advised by SBAM and its affiliates. The Fund does not provide any pension or
retirement benefits to directors. In addition, no remuneration will be paid
during the fiscal year ending April 30, 1999 by the Fund to officers of the
Fund or to Mr. McLendon, who as an employee of Salomon Smith Barney is an
"interested person," as defined in the 1940 Act.
<TABLE>
<CAPTION>
ESTIMATED TOTAL COMPENSATION
AGGREGATE FROM OTHER FUNDS
COMPENSATION ADVISED BY SBAM
NAME OF PERSON, POSITION FROM THE FUND AND AFFILIATES(A)
- ------------------------ ------------- ------------------
<S> <C> <C>
Charles F. Barber
Director..................................... $8,500 $139,437(22)*
Daniel P. Cronin
Director..................................... $8,500 $ 39,200(7)
Dr. Riordan Roett
Director..................................... $8,500 $ 68,100(10)
Jeswald W. Salacuse
Director..................................... $8,500 $ 58,800(8)
</TABLE>
(A) The numbers in parenthesis indicate the applicable number of investment
company directorships held by that director.
* Includes compensation from investment companies advised by affiliates of
Salomon Smith Barney which are affiliates of SBAM.
Directors who are not officers, directors or employees of SBAM or of any
"interested person" thereof (as defined in the 1940 Act) will be paid a fee of
$5,000 per year, plus $700 for every meeting of the Board of Directors or
committee thereof.
The officers of the Fund conduct and supervise the daily business operations
of the Fund, while the directors, in addition to performing their functions
set forth under "Management of the Fund," review such actions and determine
general policy.
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<PAGE>
The Fund's Board of Directors may have an Executive Committee, which may
exercise the powers of the Board to conduct the current and ordinary business
of the Fund while the Board is not in session.
Commencing with the first annual meeting of shareholders, the Board of
Directors will be divided into three classes, having terms of one, two and
three years, respectively. At the annual meeting of shareholders in each year
thereafter, the term of one class will expire and directors will be elected to
serve in that class for terms of three years. See "Description of Capital
Stock."
The Articles of Incorporation and By-Laws of the Fund provide that the Fund
will indemnify, to the fullest extent permitted by law, its directors and
officers and may indemnify employees or agents of the Fund against liabilities
and expenses incurred in connection with litigation in which they may be
involved because of their offices with the Fund. In addition, the Fund's
Articles of Incorporation provide that the Fund's directors and officers will
not be liable to shareholders for money damages, except in limited instances.
However, nothing in the Articles of Incorporation or By-Laws of the Fund
protects or indemnifies a director, officer, employee or agent against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
PORTFOLIO TRANSACTIONS
The Fund has no obligation to deal with any brokers or dealers in the
execution of transactions in portfolio securities. Subject to policy
established by the Fund's Board of Directors, SBAM is primarily responsible
for the Fund's portfolio decisions and the placing of the Fund's portfolio
transactions.
Debt securities normally will be purchased from or sold to issuers directly
or to dealers serving as market makers for the securities at a net price,
which may include dealer spreads and underwriting commissions. Equity
securities will normally be purchased through brokers to which commissions
will be payable. In placing orders, it is the policy of the Fund to obtain the
best results taking into account the general execution and operational
facilities of the broker or dealer, the type of transaction involved and other
factors such as the risk of the broker or dealer in positioning the securities
involved. The purchase by the Fund of Participations or Assignments may be
pursuant to privately negotiated transactions pursuant to which the Fund may
be required to pay fees to the seller or forego a portion of payments in
respect of the Participation or Assignment. While SBAM generally seeks the
best price in placing its orders, the Fund may not necessarily be paying the
lowest price available. Subject to obtaining the best price and execution,
securities firms which provide supplemental research to SBAM may receive
orders for transactions by the Fund. Information so received will be in
addition to and not in lieu of the services required to be performed by SBAM
under the Advisory Agreement, and the expenses of SBAM will not necessarily be
reduced as a result of the receipt of such supplemental information.
The Fund anticipates that, in connection with the execution of portfolio
transactions on its behalf by SBAM, certain Underwriters may from time to time
act as a broker or dealer. In addition, affiliated persons (as such term is
defined in the 1940 Act) of the Fund, or affiliated persons of such persons,
may from time to time be selected to perform brokerage services for the Fund,
subject to the considerations discussed above, but are prohibited by
42
<PAGE>
the 1940 Act from dealing with the Fund as principal in the purchase or sale
of securities. In order for such an affiliated person to be permitted to
effect any portfolio transactions for the Fund, the commissions, fees or other
remuneration received by such affiliated person must be reasonable and fair
compared to the commissions, fees or other remuneration received by other
brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a
comparable period of time. This standard would allow such an affiliated person
to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker in a commensurate arm's-length transaction.
The Fund is prohibited by the 1940 Act from purchasing securities in primary
offerings in which an affiliate acts as an underwriter unless certain
conditions established under the 1940 Act are satisfied.
Investment decisions for the Fund are made independently from those for
other funds and accounts advised or managed by SBAM. Such other funds and
accounts may also invest in the same securities as the Fund. If those funds or
accounts are prepared to invest in, or desire to dispose of, the same security
at the same time as the Fund, however, transactions in such securities will be
made, insofar as feasible, for the respective funds and accounts in a manner
deemed by SBAM to be equitable to all. In some cases, this procedure may
adversely affect the size of the position obtained for or disposed of by the
Fund or the price paid or received by the Fund. In addition, because of
different investment objectives, a particular security may be purchased for
one or more funds or accounts when one or more funds or accounts are selling
the same security.
Although the Advisory Agreement contains no restrictions on portfolio
turnover, it is not the Fund's policy to engage in transactions with the
objective of seeking profits from short-term trading. It is expected that the
annual portfolio turnover rate of the Fund will not exceed 100%. The portfolio
turnover rate is calculated by dividing the lesser of sales or purchases of
portfolio securities by the average monthly value of the Fund's portfolio
securities. For purposes of this calculation, portfolio securities exclude all
securities having a maturity when purchased of one year or less.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
Beginning with its initial distribution approximately 60 days after
completion of this offering, it is the Fund's present policy, which may be
changed by the Board of Directors, to make regular monthly cash distributions
to holders of Common Stock at a level rate that reflects the past and
projected performances of the Fund, which over time will result in the
distribution of all net investment income of the Fund (i.e., net investment
income remaining after the payment of any dividends on preferred stock if any
such stock is outstanding) and to distribute any net realized long term and
short term capital gain at least annually. The Fund's initial and subsequent
distribution level will be determined by the Fund after giving consideration
to a number of factors including the Fund's undistributed net investment
income and historical and projected investment income and expenses. Net income
consists of all interest and dividend income accrued on portfolio assets less
all expenses of the Fund. Net investment income for this purpose is income
other than net realized long term and short term capital gain.
To permit the Fund to maintain a more stable monthly distribution, the Fund
will from time to time distribute more or less than the entire amount of net
investment income earned in a particular period. Any undistributed net
investment income, to the extent permitted by income tax regulations, would be
available to
43
<PAGE>
supplement future distributions which might otherwise have been reduced by a
decrease in the Fund's monthly net income due to fluctuation in investment
income or expenses. Undistributed net investment income will be added to the
Fund's net asset value and, correspondingly, distributions from undistributed
net investment income will be deducted from the Fund's net asset value.
Pursuant to the Plan, shareholders whose shares are registered in their own
names will be deemed to have elected to have all distributions (net of any
applicable U.S. withholding tax) reinvested automatically in additional shares
of the Fund by First Data Investor Services Group, Inc. (the "Plan Agent") as
agent under the Plan, unless such shareholders elect to receive distributions
in cash. Shareholders who elect to receive distributions in cash will receive
all distributions in cash paid by check in U.S. dollars mailed directly to the
shareholder by First Data Investor Services Group, Inc., as dividend paying
agent. In the case of shareholders such as banks, brokers or nominees, which
hold shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of shares certified from time
to time by the record shareholders as representing the total amount registered
in the record shareholder's name and held for the account of beneficial owners
that have not elected to receive distributions in cash. Investors that own
shares registered in the name of a bank, broker or other nominee should
consult with such nominee as to participation in the Plan through such
nominee, and may be required to have their shares registered in their own
names in order to participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the
Plan. Unless the Board of Directors of the Fund declares a dividend or capital
gains distribution payable only in cash, non-participants in the Plan will
receive cash and participants in the Plan will receive shares of the Fund, to
be issued by the Fund or purchased by the Plan Agent in the open market as
outlined below. Whenever market price per share is equal to or exceeds net
asset value per share as of the determination date (defined as the fourth New
York Stock Exchange trading day preceding the payment date for the dividend or
distribution), participants will be issued new shares at a price per share
equal to the greater of (a) the net asset value per share on the valuation
date or (b) 95% of the market price per share on the valuation date. Except as
noted below, the valuation date generally will be the dividend or distribution
payment date. The Fund will not issue shares under the Plan at a price below
net asset value. If net asset value exceeds the market price of the Fund's
shares as of the determination date, or if the Fund should declare a dividend
or capital gains distribution payable only in cash, the Plan Agent will, as
agent for the participants, buy shares in the open market, on the New York
Stock Exchange or elsewhere, for the participants' accounts commencing as soon
as practicable on the trading day following the determination date and
generally terminating no later than 30 days after the dividend or distribution
payment date. If, before the Plan Agent has completed its purchases, the
market price exceeds the net asset value of a share, the average per share
purchase price paid by the Plan Agent may exceed the net asset value of the
Fund's shares, resulting in the acquisition of fewer shares than if the
dividend or capital gains distribution has been paid in shares issued by the
Fund. Because of the foregoing difficulty with respect to open-market
purchases, the Plan provides that if the Plan Agent is unable to invest the
full dividend amount in open-market purchases during the permissible purchase
period or if the market discount shifts to a market premium during such
purchase period, the Plan Agent will cease making open-market purchases and
will receive the uninvested portion of the dividend amount in newly issued
shares (in which case the valuation date will be the date such shares are
issued) at a price per share equal to the greater of (a) the net asset value
per share on the valuation date or (b) 95% of the market price per share on
the valuation date.
44
<PAGE>
A shareholder may elect to withdraw from the Plan at any time upon written
notice to the Plan Agent or by calling the Plan Agent at 1-800-331-1710. When
a participant withdraws from the Plan, or upon termination of the Plan as
provided below, certificates for whole shares credited to his or her account
under the Plan will be issued and a cash payment will be made for any
fractional shares credited to such account. An election to withdraw from the
Plan will, until such election is changed, be deemed to be an election by a
shareholder to take all subsequent dividends and distributions in cash.
Elections will be effective immediately if notice is received by the Plan
Agent not less than ten days prior to any dividend or distribution record
date; otherwise such termination will be effective after the investment of the
then current dividend or distribution. If a withdrawing shareholder requests
the Plan Agent to sell the shareholder's shares upon withdrawal from
participation in the Plan, the withdrawing shareholder will be required to pay
a $2.50 fee plus brokerage commissions.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including
information needed by shareholders for personal and tax records. Shares in the
account of each Plan participant will be held by the Plan Agent in
noncertificated form in the name of the participant, and each shareholder's
proxy will include those shares purchased pursuant to the Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fee for the handling of reinvestment of
dividends and distributions will be paid by the Fund. There will be no
brokerage charges with respect to shares issued directly by the Fund as a
result of dividends or capital gains distributions payable either in shares or
in cash. However, each participant will pay a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends or capital gains distributions.
The automatic reinvestment of dividends and distributions will not relieve
participants of any U.S. federal income tax that may be payable on such
dividends or distributions. To the extent dividends and distributions are
reinvested in additional shares issued by the Fund, participants should be
treated for U.S. federal income tax purposes as receiving a distribution in an
amount equal to the fair market value, determined as of the valuation date, of
the shares received (regardless of the net asset value of the shares on the
valuation date), and should have a cost basis in such shares equal to such
fair market value. Shareholders receiving a distribution in the form of shares
purchased by the Plan Agent in the open market will be treated for U.S.
federal income tax purposes as receiving a distribution of the cash
distribution that such shareholder would have received had it not elected to
have such distribution reinvested.
Experience under the Plan may indicate that changes thereto may be
desirable. Accordingly, the Fund reserves the right to amend or terminate the
Plan as applied to any dividend or distribution paid (i) subsequent to notice
of the change sent to all participants at least 30 days before the record date
for such dividend or distribution or (ii) otherwise in accordance with the
terms of the Plan. The Plan also may be amended or terminated by the Plan
Agent, with the Fund's prior written consent, on at least 30 days' prior
written notice to all participants. All correspondence concerning the Plan
should be directed to the Plan Agent at P.O. Box 8030, Boston, Massachusetts
02266-8030.
45
<PAGE>
TAXATION
The following is a general summary of certain United States federal income
tax considerations affecting the Fund and United States and foreign
shareholders and, except as otherwise indicated, is based upon federal income
tax laws in effect on the date of this Prospectus. Such tax laws are subject
to change by legislative, judicial or administrative action, possibly with
retroactive effect. No attempt is made to present a detailed explanation of
all federal, state, local and foreign income tax considerations, and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, potential investors are urged to consult their own tax advisers
regarding an investment in the Fund.
THE FUND
The Fund intends to elect and qualify to be treated as a regulated
investment company for federal income tax purposes under Subchapter M of the
Code. In order to so qualify, the Fund must, among other things, (a) derive in
each taxable year at least 90% of its gross income from dividends, interest,
payments with respect to loans of securities, gains from the sale or other
disposition of stock or securities, or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities or
currencies (including, but not limited to, gains from options, futures or
forward contracts); and (b) diversify its holdings so that, at the end of each
quarter of each taxable year, (i) at least 50% of the value of the Fund's
assets is represented by cash, cash items, U.S. Government securities,
securities of other regulated investment companies, and other securities
which, with respect to any one issuer, do not represent more than 5% of the
value of the Fund's assets nor more than 10% of the voting securities of such
issuer, and (ii) not more than 25% of the value of the Fund's assets is
invested in the securities of any issuer (other than U.S. Government
securities or the securities of other regulated investment companies) or of
any two or more issuers that the Fund controls and that are engaged in the
same, similar or related trades or business.
If the Fund qualifies as a regulated investment company and distributes to
its holders of Common Stock at least 90% of its net investment income (i.e.,
the Fund's investment company taxable income, as that term is defined in the
Code, without regard to the deduction for dividends paid), the Fund will not
be subject to federal income tax on the portion of its net investment income
and net capital gain (i.e., the excess of the Fund's net long-term capital
gain over net short-term capital loss) that it distributes to shareholders.
However, the Fund would be subject to corporate income tax (currently at a
rate of 35%) on any undistributed income and gain. If the Fund retains amounts
attributable to its net capital gain, it will designate such retained amounts
as undistributed net capital gain in a notice to its shareholders who (i) will
be required to include in income for United States federal income tax
purposes, as long-term capital gain, their proportionate shares of the
undistributed amount, (ii) will be entitled to credit their proportionate
shares of the 35% tax paid by the Fund on the undistributed amount against
their United States federal income tax liabilities and to claim refunds to the
extent such credits exceed their liabilities and (iii) will be entitled to
increase their tax basis, for United States federal income tax purposes, in
their shares by an amount currently equal to the difference between the amount
of includible gain and their proportionate shares of the 35% tax paid by the
Fund.
In addition, the Fund will be subject to a nondeductible 4% excise tax on
the amount by which the aggregate income it distributes in any calendar year
is less than the sum of: (a) 98% of the Fund's ordinary income for such
calendar year; (b) 98% of the Fund's capital gain net income for the one-year
period generally ending on October 31 of each year; and (c) 100% of the
undistributed ordinary income and capital gain net income from
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<PAGE>
prior years. For this purpose, any income or gain retained by the Fund subject
to corporate income tax will be considered to have been distributed by year-
end.
The Fund intends to distribute sufficient income so as to avoid both the
corporate income tax and the excise tax.
The Internal Revenue Service ("IRS") has taken the position in a revenue
ruling that a regulated investment company that has two or more classes of
shares must designate distributions made to each class in any year as
consisting of no more than such class's proportionate share of each type of
income for each tax year based on the total dividends distributed to each
class for such year, including dividends qualifying for the corporate
dividends-received deduction and net capital gain. Consequently, if both
Common Stock and preferred stock are outstanding, the Fund intends to
allocate, to the fullest extent practicable, income distributed to the classes
as consisting of particular types of income in accordance with each class's
proportionate share of such income. Thus, the Fund will designate dividends
qualifying for the corporate dividends-received deduction, income not
qualifying for the dividends-received deduction and net capital gain income in
a manner that allocates such income between the holders of Common Stock and
preferred stock in proportion to the total distributions made to each class
during the taxable year, or otherwise as required by applicable law.
If at any time when leverage is outstanding the Fund does not meet the asset
coverage requirements of the 1940 Act or of any rating agency that has rated
such leverage, the Fund will be required to suspend distributions to holders
of Common Stock until the asset coverage is restored. See "Additional
Investment Activities--Leverage." This may prevent the Fund from distributing
at least 90% of its net investment income, and may therefore jeopardize the
Fund's qualification for taxation as a regulated investment company or cause
the Fund to incur a corporate income tax or a non-deductible 4% excise tax on
the undistributed taxable income (including gain). Upon any failure to meet
the asset coverage requirements of the 1940 Act, or those imposed by a rating
agency, the Fund may, in its sole discretion, purchase or redeem any preferred
stock or short-term debt securities in order to maintain or restore the
requisite asset coverage and avoid the adverse consequences to the Fund and
its shareholders of failing to qualify as a regulated investment company.
There can be no assurance, however, that any such redemption would achieve
such objectives.
Various transactions in which the Fund may engage, including Derivative
Transactions, will be subject to special provisions of the Code that, among
other things, may affect the character of gain and loss realized by the Fund
(that is, may affect whether gain or loss is ordinary or capital), accelerate
recognition of income to the Fund, affect the holding period of the Fund's
assets and defer recognition of certain of the Fund's losses. These rules
could therefore affect the character, amount and timing of distributions to
shareholders. In addition, these provisions (1) may require the Fund to mark
to market certain types of positions in its portfolio (that is, treat them as
if they were closed out at the end of each taxable year) and (2) may cause the
Fund to recognize income or gain without receiving cash with which to pay
dividends or make distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise taxes. The Fund
intends to monitor its transactions, will make the appropriate tax elections
and will make the appropriate entries in its books and records when it
acquires any forward contract, option, futures contract, or hedged investment
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.
The Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments in pay-in-
kind bonds or in obligations such as certain Brady Bonds
47
<PAGE>
or other obligations having original issue discount (i.e., an amount equal to
the excess of the security's stated redemption price at maturity over its
issue price), or market discount (i.e., an amount equal to the excess of the
security's stated redemption price at maturity over its basis immediately
after it was acquired) if the Fund elects, as it intends, to accrue market
discount on a current basis. In addition, income may continue to accrue for
federal income tax purposes with respect to a non-performing investment. Any
of the foregoing income would be treated as income earned by the Fund and
therefore would be subject to the distribution requirements of the Code.
Because such income may not be matched by a corresponding cash distribution to
the Fund, the Fund may be required to dispose of other securities to be able
to make distributions to its shareholders.
The Fund's taxable income will in most cases be determined on the basis of
reports made to the Fund by the issuers of the securities in which the Fund
invests. The tax treatment of certain securities in which the Fund may invest
is not free from doubt and it is possible that an IRS examination of the
issuers of such securities or of the Fund could result in adjustments to the
income of the Fund. An upward adjustment by the IRS to the income of the Fund
may result in the failure of the Fund to satisfy the 90% distribution
requirement described in this Prospectus necessary for the Fund to maintain
its status as a regulated investment company under the Code. In such event,
the Fund may be able to make a "deficiency dividend" distribution to its
shareholders with respect to the year under examination to satisfy this
requirement. Such distribution will be taxable as a dividend to the
shareholders receiving the distribution (whether or not the Fund has
sufficient current or accumulated earnings and profits for the year in which
such distribution is made). A downward adjustment by the IRS to the income of
the Fund may cause a portion of the previously made distribution with respect
to the year under examination not to be treated as a dividend. In such event,
the portion of distributions to such shareholder not treated as a dividend
would be recharacterized as a tax-free return of capital and reduce the
shareholder's basis in the shares held at the time of the previously made
distributions. Accordingly, this reduction in basis could cause a shareholder
to recognize additional gain upon the sale of such shareholder's shares.
SHAREHOLDERS
Distributions. Distributions to shareholders of net investment income will
be taxable as ordinary income whether paid in cash or reinvested in additional
shares. It is not anticipated that a significant portion of such dividends, if
any, will qualify for the dividends received deduction generally available to
corporate shareholders under the Code. Shareholders receiving distributions
from the Fund in the form of additional shares pursuant to the Plan will be
treated for federal income tax purposes as receiving a distribution in an
amount equal to the fair market value of the additional shares on the date of
such distribution.
Distributions to shareholders of net capital gain that are designated by the
Fund as "capital gain dividends" will be taxable as long-term capital gain,
whether paid in cash or reinvested in additional shares, regardless of how
long the shares have been held by such shareholders. These distributions will
not be eligible for the dividends received deduction. The current maximum
federal income tax rate imposed on long-term capital gain of individuals is
28% with respect to capital assets held for more than one year but less than
18 months and 20% with respect to capital assets held for more than 18 months.
The current maximum federal income tax rate imposed on individuals with
respect to ordinary income (and short-term capital gain, which is taxed at the
same rates as ordinary income) is 39.6%. With respect to corporate taxpayers,
long-term capital gain is taxed at the same federal income tax rates as
ordinary income and short-term capital gain.
Investors considering buying shares just prior to an ordinary income
dividend or capital gain dividend should be aware that, although the price of
shares purchased at that time may reflect the amount of the
48
<PAGE>
forthcoming distribution, those who purchase just prior to a distribution will
receive a distribution which will nevertheless be taxable to them.
Dividends and distributions paid by the Fund are generally taxable to the
shareholders at the time the dividend or distribution is made (even if paid or
reinvested in additional shares). Any dividend declared by the Fund in
October, November or December of any calendar year, however, which is payable
to shareholders of record on a specified date in such a month will be treated
as received by the shareholders as of December 31 of such year, provided that
the dividend is paid during January of the following year. In general, any
distribution in excess of the Fund's net investment income and net capital
gain would first reduce a shareholder's basis in his shares and, after the
shareholder's basis is reduced to zero, would constitute capital gain to a
shareholder who holds his shares as capital assets. However, such excess would
first be treated as an ordinary income dividend to the extent of the Fund's
remaining current and accumulated earnings and profits.
A notice detailing the amounts and tax status of dividends and distributions
paid by the Fund, and the amount of undistributed net capital gain (if any),
as well as the portions of the Fund's capital gain dividends and undistributed
net capital gain that are subject to the 28% and 20% maximum tax rates, will
be mailed annually to the shareholders of the Fund.
Dispositions. Gain or loss, if any, recognized on the sale or other
disposition of shares of the Fund will be taxed as capital gain or loss if the
shares are capital assets in the shareholder's hands. Generally, a
shareholder's gain or loss will be a long-term gain or loss if the shares have
been held for more than one year. If a shareholder sells or otherwise disposes
of a share of the Fund before holding it for more than six months, any loss on
the sale or other disposition of such share shall be treated as a long-term
capital loss to the extent of any capital gain dividends received by the
shareholder with respect to such share. A loss realized on a sale or exchange
of shares may be disallowed if other shares are acquired (whether under the
Plan or otherwise) within a 61-day period beginning 30 days before and ending
30 days after the date the shares are disposed of. If disallowed, the loss
will be reflected by an upward adjustment to the basis of the shares acquired.
Foreign Taxes. The Fund may be subject to certain taxes imposed by foreign
countries with respect to dividends, capital gain and interest income. The
United States has entered into tax treaties with many foreign countries which
would entitle the Fund to a reduced rate of, or exemption from, such taxes.
The Fund may invest up to 35% of its total assets in foreign debt securities.
Accordingly, the Fund will not be eligible to elect to pass through to
shareholders of the Fund the ability to use the foreign tax deduction or
foreign tax credit for foreign taxes paid with respect to qualifying taxes.
Foreign Shareholders. Taxation of a shareholder who, as to the United
States, is a non-resident alien individual, foreign trust or estate, foreign
corporation or foreign partnership ("foreign shareholder") depends, in part,
on whether the shareholder's income from the Fund is "effectively connected"
with a United States trade or business carried on by the shareholder. If a
shareholder is a resident alien or if dividends or distributions from the Fund
are effectively connected with a United States trade or business carried on by
a foreign shareholder, then ordinary income dividends, capital gain dividends,
undistributed net capital gain and gain realized upon the sale of shares of
the Fund will be subject to United States federal income tax at the rates
applicable to United States citizens or domestic corporations. Foreign
shareholders that are corporations may also be subject to an additional
"branch profits tax" with respect to income from the Fund that is effectively
connected with a United States trade or business.
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<PAGE>
If the income from the Fund is not effectively connected with a United
States trade or business carried on by the foreign shareholder, (i) ordinary
income dividends will be subject to a 30% (or lower applicable treaty rate)
United States federal withholding tax and (ii) distributions of net capital
gain dividends, undistributed net capital gain and gain realized upon the sale
of shares of the Fund will not be subject to United States federal income tax
as long as such foreign shareholder is not a non-resident alien individual who
was physically present in the United States for more than 182 days during the
taxable year and, in the case of gains realized upon the sale of Fund shares,
certain other conditions are met. However, certain foreign shareholders may
nonetheless be subject to 31% backup withholding on distributions of net
capital gain and gross proceeds paid to them upon the sale of their shares of
the Fund. See "--Backup Withholding."
The United States Treasury Department recently issued regulations generally
effective for payments made after December 31, 1999 concerning the withholding
of tax and reporting for certain amounts paid to nonresident aliens and
foreign corporations (the "Final Withholding Regulations"). Among other
things, the Final Withholding Regulations may require shareholders that are
not United States persons within the meaning of the Code to furnish new
certification of their foreign status after December 31, 1999. Prospective
investors should consult their tax advisers concerning the applicability and
effect of the Final Withholding Regulations on an investment in shares of the
Fund.
Transfer by gift of shares of the Fund by a foreign shareholder who is a
non-resident alien individual will not be subject to United States federal
gift tax, but the value of shares of the Fund held by such a shareholder at
his death will be includible in such shareholder's gross estate for United
States federal estate tax purposes.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described in this
section. Shareholders may be required to provide appropriate documentation to
establish their entitlement to the benefits of such a treaty. Foreign
investors are advised to consult their own tax advisers with respect to (a)
whether their income from the Fund is or is not effectively connected with a
U.S. trade or business carried on by them, (b) whether they may claim the
benefits of an applicable tax treaty and (c) any other tax consequences to
them of an investment in the Fund.
Backup Withholding. The Fund may be required to withhold federal income tax
at a rate of 31% ("backup withholding") from dividends and redemption proceeds
paid to non-corporate shareholders. This tax may be withheld from dividends if
(i) the shareholder fails to furnish the Fund with the shareholder's correct
taxpayer identification number, (ii) the IRS notifies the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (iii) when required to
do so, the shareholder fails to certify that he or she is not subject to
backup withholding. Redemption proceeds may be subject to withholding under
the circumstances described in (i) above. The Fund must report annually to the
IRS and to each foreign shareholder the amount of dividends paid to such
shareholder and the amount, if any, of tax withheld pursuant to the backup
withholding rules with respect to such dividends. This information may also be
made available to the tax authorities in the foreign shareholder's country of
residence. Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules from payments made to a shareholder may be
refunded or credited against such shareholder's United States federal income
tax liability, if any, provided that the required information is furnished to
the IRS.
---------------------
Investors should consult their own tax advisers regarding specific questions
as to the federal, state, local and foreign tax consequences of the ownership
and disposition of shares in the Fund.
50
<PAGE>
NET ASSET VALUE
Net asset value per share will be determined no less frequently than weekly,
on the last business day of each week and at such other times as the Board of
Directors may determine, by dividing the value of the securities held by the
Fund plus any cash or other assets (including interest accrued but not yet
received) minus all liabilities (including accrued expenses) and the aggregate
liquidation value of any outstanding shares of preferred stock by the total
number of shares of Common Stock outstanding. In valuing the Fund's assets,
all securities for which market quotations are readily available are valued
(except as described below) (i) at the last sale price prior to the time of
determination if there was a sales price on the date of determination, (ii) at
the mean between the last current bid and asked prices if there was no sales
price on such date and bid and asked quotations are available, and (iii) at
the bid price if there was no sales price on such date and only bid quotations
are available. Publicly traded sovereign debt instruments are typically traded
internationally on the over-the-counter market, and will be valued at the mean
between the last current bid and asked price as at the close of business of
that market. In instances where a price determined above is deemed not to
represent fair market value, the price is determined in such manner as the
Board of Directors may prescribe. Securities may be valued by independent
pricing services which use prices provided by market-makers or estimates of
market values obtained from yield data relating to instruments or securities
with similar characteristics. Short-term investments having a maturity of 60
days or less are valued at amortized cost, unless the Board of Directors
determines that such valuation does not constitute fair value. Securities for
which reliable quotations or pricing services are not readily available and
all other securities and assets are valued at fair value as determined in good
faith by, or under procedures established by, the Board of Directors.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock ($.001 par value per share). The Common Stock of the Fund, when issued,
will be fully paid and nonassessable. All shares of Common Stock are equal as
to dividends, distributions and voting privileges. There are no conversion,
preemptive or other subscription rights. In the event of liquidation, each
share of Common Stock is entitled to its proportion of the Fund's assets after
debts and expenses. There are no cumulative voting rights for the election of
directors. Prior to the offering, SBAM or an affiliate thereof will own 100%
of the outstanding shares of Common Stock of the Fund and, consequently, will
be a controlling person of the Fund until the shares offered hereby are issued
and sold. The Fund will hold annual meetings of shareholders.
The Fund has no present intention of offering additional shares of its
Common Stock. Other offerings of its Common Stock, if made, will require
approval of the Fund's Board of Directors. Any additional offering will be
subject to the requirements of the 1940 Act that shares of Common Stock may
not be sold at a price below the then current net asset value (exclusive of
underwriting discounts and commissions) except in connection with an offering
to existing shareholders or with the consent of a majority of the Fund's
outstanding shares of Common Stock.
51
<PAGE>
PREFERRED STOCK
The Fund's Articles of Incorporation provides that the Board of Directors
may classify or reclassify any unissued shares of capital stock into one or
more additional or other classes or series, with rights as determined by the
Board of Directors, by action by the Board of Directors without the approval
of the holders of Common Stock. Holders of Common Stock have no preemptive
right to purchase any shares of preferred stock that might be issued.
The terms of any preferred stock, including its dividend rate, liquidation
preference and redemption provisions will be determined by the Board of
Directors (subject to applicable law and the Fund's Articles of
Incorporation). The Fund believes that it is likely that the liquidation
preference, voting rights and redemption provisions of any preferred stock
will be similar to those stated below.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Fund, the holders of preferred
stock will be entitled to receive a preferential liquidating distribution
(expected to equal the original purchase price per share plus accrued and
unpaid dividends, whether or not declared) before any distribution of assets
is made to holders of Common Stock. After payment of the full amount of the
liquidating distribution to which they are entitled, the preferred
shareholders will not be entitled to any further participation in any
distribution of assets by the Fund. A consolidation or merger of the Fund with
or into any corporation or corporations or a sale of all or substantially all
assets of the Fund will not be deemed to be a liquidation, dissolution or
winding upon of the Fund.
Voting Rights. The 1940 Act requires that the holders of any preferred
stock, voting separately as a single class, have the right to elect at least
two directors at all times and, subject to the prior rights, if any, of the
holders of any other class of senior securities outstanding, to elect a
majority of the directors at any time dividends on any preferred shares are
unpaid for a period of two years. The 1940 Act also requires that, in addition
to any approval by shareholders that might otherwise be required, the approval
of the holders of a majority of any outstanding preferred shares, voting
separately as a class, would be required to (a) adopt any plan of
reorganization that would adversely affect the preferred shares and (b) take
any action requiring a vote of security holders pursuant to Section 13(a) of
the 1940 Act, including, among other things, changes in the Fund's
subclassification as a closed-end investment company to an open-end investment
company or changes in its fundamental investment restrictions. See
"Description of Capital Stock--Special Voting Provisions" concerning voting
requirements for conversion of the Fund to an open-end investment company and
other matters. As a result of these voting rights, the Fund's ability to take
any such actions may be impeded to the extent there is any preferred stock
outstanding at such time. In addition, in the discretion of the Board of
Directors, subject to the 1940 Act, the terms of any preferred stock may also
require a vote of up to 75% of the preferred stock, voting separately as a
class, regarding certain transactions involving a merger or sale of assets or
conversion of the Fund to open-end status and other matters. The Board of
Directors presently intends that, except for the matters discussed in this
Prospectus and as otherwise required by applicable law, holders of shares of
preferred stock will have equal voting rights with holders of Common Stock
(one vote per share, unless otherwise required by the 1940 Act), and will vote
together with holders of Common Stock as a single class.
It is presently intended that in connection with the election of the Fund's
directors, on and after issuance of any preferred stock, the holders of all
outstanding shares of preferred stock, voting as a separate class, would be
entitled to elect two directors of the Fund, and the remaining directors would
be elected by holders of Common
52
<PAGE>
Stock and preferred stock, voting together as a single class. The Fund's By-
Laws provide that the Board of Directors shall consist of no more than 12
directors, as may be determined from time to time by vote of a majority of
directors then in office.
The affirmative vote of the holders of a majority of the outstanding shares
of preferred stock, voting as a separate class, will be required to amend,
alter or repeal any of the preferences, rights or powers of holders of shares
of preferred stock so as to affect materially and adversely such preferences,
rights, or powers, or increase or decrease the numbers of shares of preferred
stock. The class vote of holders of preferred stock described above will in
each case be in addition to any other vote required to authorize the action in
question.
Redemption, Purchase and Sale of Preferred Stock by the Fund. Any redemption
or purchase of shares of preferred stock by the Fund will reduce the leverage
applicable to shares of Common Stock, while any resale of such shares of
preferred stock by the Fund will increase such leverage. See "Additional
Investment Activities--Leverage."
The discussion above describes the present intention of the Board of
Directors with respect to an offering of preferred stock if the Board elects
to utilize preferred stock in order to leverage the Fund's Common Stock. If
the Board of Directors determines to proceed with such an offering, the terms
of the preferred stock may be the same as, or different from, the terms
described above, subject to applicable law and the Fund's Articles of
Incorporation. The Board of Directors, without the approval of the holders of
Common Stock, may authorize an offering of preferred stock or may determine
not to authorize such an offering, and may fix the terms of the preferred
stock to be offered.
SPECIAL VOTING PROVISIONS
The Fund has provisions in its Articles of Incorporation and By-Laws that
could have the effect of limiting the ability of other entities or persons to
acquire control of the Fund, to cause it to engage in certain transactions or
to modify its structure. Commencing with the first annual meeting of
shareholders, the Board of Directors will be divided into three classes,
having initial terms of one, two and three years, respectively. At the annual
meeting of shareholders in each year thereafter, the term of one class will
expire and directors will be elected to serve in that class for terms of three
years. This provision could delay for up to two years the replacement of a
majority of the Board of Directors. A director may be removed from office only
for cause and only by a vote of the holders of at least 75% of the outstanding
shares of the Fund entitled to be cast on the matter.
The affirmative vote of at least 75% of the entire Board of Directors is
required to authorize the conversion of the Fund from a closed-end to an open-
end investment company. Such conversion also requires the affirmative vote of
the holders of at least 75% of the votes entitled to be cast thereon by the
shareholders of the Fund unless it is approved by a vote of at least 75% of
the Continuing Directors (as defined below), in which event such conversion
requires the approval of the holders of a majority of the votes entitled to be
cast thereon by the shareholders of the Fund. A "Continuing Director" is any
member of the Board of Directors of the Fund who (i) is not a person or
affiliate of a person who enters or proposes to enter into a Business
Combination (as defined below) with the Fund (an "Interested Party") and (ii)
who has been a member of the Board of Directors of the Fund for a period of at
least 12 months, or has been a member of the Board of Directors since April
24, 1998, or is a successor of a Continuing Director who is unaffiliated with
an Interested Party and is recommended to succeed a Continuing Director by a
majority of the Continuing Directors then on the Board of Directors of the
53
<PAGE>
Fund. The affirmative vote of at least 75% of the votes entitled to be cast
thereon by shareholders of the Fund will be required to amend the Articles of
Incorporation to change any of the provisions in this paragraph and the
preceding paragraph.
The affirmative votes of at least 75% of the entire Board of Directors and
the holders of at least (i) 80% of the votes entitled to be cast thereon by
the shareholders of the Fund and (ii) in the case of a Business Combination
(as defined below), 66 2/3% of the votes entitled to be cast thereon by the
shareholders of the Fund other than votes held by an Interested Party who is
(or whose affiliate is) a party to a Business Combination (as defined below)
or an affiliate or associate of the Interested Party, are required to
authorize any of the following transactions:
(i) merger, consolidation or statutory share exchange of the Fund with or
into any other person;
(ii) issuance or transfer by the Fund (in one or a series of transactions in
any 12-month period) of any securities of the Fund to any person or entity for
cash, securities or other property (or combination thereof) having an
aggregate fair market value of $1,000,000 or more, excluding issuances or
transfers of debt securities of the Fund, sales of securities of the Fund in
connection with a public offering, issuances of securities of the Fund
pursuant to a dividend reinvestment plan adopted by the Fund, issuances of
securities of the Fund upon the exercise of any stock subscription rights
distributed by the Fund and portfolio transactions effected by the Fund in the
ordinary course of business;
(iii) sale, lease, exchange, mortgage, pledge, transfer or other disposition
by the Fund (in one or a series of transactions in any 12 month period) to or
with any person or entity of any assets of the Fund having an aggregate fair
market value of $1,000,000 or more except for portfolio transactions
(including pledges of portfolio securities in connection with borrowings)
effected by the Fund in the ordinary course of its business (transactions
within clauses (i), (ii) and (iii) above being known individually as a
"Business Combination");
(iv) any voluntary liquidation or dissolution of the Fund or an amendment to
the Fund's Articles of Incorporation to terminate the Fund's existence; or
(v) unless the 1940 Act or federal law requires a lesser vote, any
shareholder proposal as to specific investment decisions made or to be made
with respect to the Fund's assets as to which shareholder approval is required
under federal or Maryland law.
However, the shareholder vote described above will not be required with
respect to the foregoing transactions (other than those set forth in (v)
above) if they are approved by a vote of at least 75% of the Continuing
Directors. In that case, if Maryland law requires shareholder approval, the
affirmative vote of a majority of votes entitled to be cast thereon shall be
required. The Fund's By-Laws contain provisions the effect of which is to
prevent matters, including nominations of directors, from being considered at
a shareholders' meeting where the Fund has not received notice of the matters
at least 60 days prior to the meeting (or within 10 days following the date
notice of such meeting is given by the Fund if less than 70 days' notice of
such meeting is given by the Fund).
54
<PAGE>
The Board of Directors has determined that the foregoing voting
requirements, which are generally greater than the minimum requirements under
Maryland law and the 1940 Act, are in the best interest of the Fund's
shareholders generally.
Reference is made to the Articles of Incorporation and By-Laws of the Fund,
on file with the Commission, for the full text of these provisions. See
"Further Information." These provisions could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over
prevailing market prices by discouraging a third party from seeking to obtain
control of the Fund in a tender offer or similar transaction. In the opinion
of SBAM, however, these provisions offer several possible advantages. They may
require persons seeking control of the Fund to negotiate with its management
regarding the price to be paid for the shares required to obtain such control,
they promote continuity and stability and they enhance the Fund's ability to
pursue long-term strategies that are consistent with its investment
objectives.
CUSTODIAN, TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
PNC Bank, N.A., Airport Business Center, International Court 2, 200 Stevens
Drive, Lester, Pennsylvania 19113, will act as custodian for the Fund's
assets. First Data Investor Services Group, Inc., P.O. Box 5127, Westborough,
Massachusetts 01581-5127, will act as the transfer agent, dividend paying
agent and registrar for the Fund's Common Stock.
55
<PAGE>
UNDERWRITING
The Underwriters named herein, for whom Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013 is acting as Representative (the
"Representative"), have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement among the Fund, SBAM and the several
Underwriters (the "Underwriting Agreement"), to purchase from the Fund the
number of shares of Common Stock set forth below opposite their respective
names.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Smith Barney Inc..........................................
A.G. Edwards & Sons, Inc..................................
Advest, Inc...............................................
EVEREN Securities, Inc....................................
Fahnestock & Co. Inc......................................
Janney Montgomery Scott Inc...............................
Legg Mason Wood Walker, Incorporated......................
McDonald & Company Securities, Inc........................
Morgan Keegan & Company, Inc..............................
The Robinson-Humphrey Company, LLC........................
Tucker Anthony Incorporated...............................
Wedbush Morgan Securities.................................
---
Total...................................................
===
</TABLE>
The Representative has informed the Fund that the Underwriters do not intend
to confirm shares of Common Stock to any accounts over which they exercise
discretionary authority.
The Underwriters, through their Representative, have advised the Fund that
they propose to offer the shares of Common Stock initially at the public
offering price set forth on the cover page of this Prospectus. There is no
sale charge or underwriting discount charged to investors on purchases of
shares of Common Stock in the offering. SBAM or an affiliate has agreed to pay
the Underwriters from its own assets a commission in connection with the sale
of shares of Common Stock in the offering in the amount of $ per share.
Such payment is equal to % of the initial public offering price per share.
From this amount, the Underwriters may allow to selected dealers a payment in
the amount of $. per share sold by such dealers and such dealers may
reallow a payment of $ per share to certain other dealers. The Underwriters
reserve the right to reject orders in whole or in part. After the initial
offering of the Common Stock to the public, the offering price and other
selling terms may be changed by the Representative. The Fund is obligated to
sell, and the Underwriters are obligated to purchase, all of the shares of
Common Stock offered hereby (other than shares covered by the over-allotment
option described below) if any are sold. Investors must pay for any shares of
Common Stock purchased on or before , 1998.
The Fund has granted to the Underwriters an option, exercisable within 60
days of this Prospectus, to purchase up to additional shares of Common
Stock at the same price to public as set forth on the cover page of this
Prospectus. The Underwriters may exercise such option solely for the purpose
of covering over-allotments, if any, incurred in the sale of the shares of
Common Stock offered hereby. To the extent the
56
<PAGE>
Underwriters exercise such option, each of the Underwriters will be obligated,
subject to certain conditions, to purchase the same proportion of such
additional shares as the number of shares set forth opposite such
Underwriter's name in the preceding table bears to the total number of shares
set forth in such table.
The Fund and SBAM have each agreed to indemnify the several Underwriters or
contribute to losses arising out of certain liabilities, including liabilities
under the Securities Act.
The Fund has agreed to pay the Underwriters $ as partial reimbursement
of expenses incurred in connection with the offering.
In connection with the requirements for listing the Fund's shares of Common
Stock on the NYSE, the Underwriters have undertaken to sell lots of 100 or
more shares of Common Stock to a minimum of 2,000 beneficial owners in the
United States. The minimum investment requirement is 100 shares of Common
Stock.
Prior to the offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price has been determined by
negotiation between the Fund, SBAM and the Representative. The Common Stock
has been approved for listing on the NYSE subject to official notice of
issuance. Smith Barney Inc. intends to make a market in the Common Stock after
trading in the Common Stock has commenced on the NYSE. Smith Barney Inc.,
however, is not obligated to conduct market-making activities and any such
activities may be discontinued at any time without notice, at the sole
discretion of Smith Barney Inc. No assurance can be given as to the liquidity
of, or the trading market for, the Common Stock as a result of any market-
making activities undertaken by Smith Barney Inc. This Prospectus is to be
used by Smith Barney Inc. in connection with this offering and with offers and
sales of the Common Stock in market-making transactions in the over-the-
counter market at negotiated prices related to prevailing market prices at the
time of the sale.
The Underwriters have advised the Fund that, pursuant to Regulation M under
the Securities Exchange Act of 1934, as amended, certain persons participating
in the offering may engage in transactions, including stabilizing bids,
covering transactions or the imposition of penalty bids, which may have the
effect of stabilizing or maintaining the market price of the Common Stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the Common Stock on behalf
of an Underwriter for the purpose of fixing or maintaining the price of the
Common Stock. A "covering transaction" is a bid for or purchase of the Common
Stock on behalf of an Underwriter to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is an
arrangement permitting an Underwriter to reclaim the selling concession
otherwise accruing to the Underwriters in connection with the offering if any
of the Common Stock originally sold by the Underwriters is purchased in a
covering transaction and has therefore not been effectively placed by the
Underwriters. The Underwriters have advised the Fund that such transactions
may be effected on the NYSE or otherwise and, if commenced, may be
discontinued at any time.
The Underwriting Agreement provides that it may be terminated in the
absolute discretion of the Representative without liability on the part of any
Underwriter to the Fund or SBAM if, prior to delivery of and payment for the
shares of Common Stock, (i) trading in the Fund's Common Stock shall have been
suspended by the Commission or the NYSE or trading in securities generally on
the NYSE shall have been suspended or limited or minimum prices shall have
been established on the NYSE, (ii) a banking moratorium shall have been
declared either by Federal or New York State authorities or (iii) there shall
have occurred any outbreak or escalation of hostilities, declaration by the
United States of a national emergency or war or other calamity or
57
<PAGE>
crisis the effect of which on financial markets is such as to make it, in the
judgment of the Representative, impracticable or inadvisable to proceed with
the offering or delivery of the securities as contemplated by this Prospectus
(exclusive of any supplement thereto).
The Underwriters have taken certain actions to discourage short-term trading
of shares of Common Stock during a period of time following the initial
offering date. Included in these actions is the withholding of payments to
Underwriters and concessions to dealers in connection with shares of Common
Stock which were sold by such Underwriters or dealers and which are
repurchased for the account of the Underwriters during such period.
The Fund anticipates that from time to time the Representative of the
Underwriters and certain other Underwriters may act as brokers or dealers in
connection with the execution of the Fund's portfolio transactions after they
have ceased to be Underwriters and, subject to certain restrictions, may act
as brokers while they are Underwriters.
The Fund has agreed not to offer or sell any additional shares of Common
Stock for a period of 180 days after the date of this Prospectus, without the
prior written consent of the Smith Barney Inc.
SBAM and Smith Barney Inc. are each wholly-owned subsidiaries of Salomon
Smith Barney Holdings Inc., which is in turn wholly-owned by Travelers Group
Inc.
EXPERTS
The financial statement of the Fund included in this Prospectus has been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
LEGAL MATTERS
The validity of the shares offered hereby will be passed on for the Fund by
Simpson Thacher & Bartlett, New York, New York, and certain legal matters in
connection with the offering of the shares will be passed on for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
Counsel for the Fund and the Underwriters will rely, as to matters of Maryland
law, on Piper & Marbury L.L.P., Baltimore, Maryland.
FURTHER INFORMATION
Prior to the registration statement becoming effective, the Underwriters or
other appropriate party may distribute advertising or other solicitation
material which discusses (i) economic and market conditions and trends
generally; (ii) historical and current conditions and trends in the high yield
debt securities market and risk and reward potential in such market; (iii)
comparative information, including statistical analysis and performance-
related information, related to high yield securities generally and investing
in high yield securities; (iv) the special considerations and potential
benefits of investing in closed-end management investment companies and (v)
information about SBAM and the Fund's portfolio managers, including honors or
awards received and information and commentary on investment strategy or other
matters of general interest to investors.
Further information concerning these securities and their issuer may be
found in the Registration Statement, of which this Prospectus constitutes a
part, on file with the Commission.
58
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
Salomon Brothers High Income Fund II Inc
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Salomon Brothers
High Income Fund II Inc (the "Fund") at May , 1998, in conformity with
generally accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
May , 1998
59
<PAGE>
[SALOMON BROTHERS HIGH INCOME FUND II INC (NOTE 1)
STATEMENT OF ASSETS AND LIABILITIES
MAY , 1998
<TABLE>
<S> <C>
Assets:
Cash.................................................................... $
Deferred organization expenses (Note 2)
----
Total assets........................................................... $
Liabilities:
Accrued organization expenses (Note 2).................................. $
Commitments (Notes 2 and 3).............................................
----
Net Assets ( shares of $.001 par value shares of common stock issued
and outstanding; 100,000,000 shares authorized)......................... $
====
Net asset value per share................................................ $
====
</TABLE>
NOTES TO FINANCIAL STATEMENT
NOTE 1
Salomon Brothers High Income Fund II Inc (the "Fund") was incorporated as a
Maryland corporation on March 19, 1998, and has had no operations to date
other than matters relating to its organization and registration as a
diversified, closed-end management investment company under the Investment
Company Act of 1940, as amended, and the sale and issuance of shares of
its common stock for $ to [Salomon Brothers Asset Management Inc
("SBAM")]. The books and records of the Fund will be maintained in U.S.
Dollars.
NOTE 2
Organization expenses relating to the Fund incurred and to be incurred by
SBAM will be reimbursed by the Fund. Offering costs, estimated at $ , will
be paid from the proceeds of the offering and will be charged to capital at
the time of the issuance of such shares.
NOTE 3
The Fund intends to enter into a management contract with SBAM, pursuant to
which SBAM will provide investment advisory services to the Fund and will be
responsible for the management of the Fund's portfolio in accordance with the
Fund's investment policies and for making decisions to buy, sell, or hold
particular securities. The Fund will pay SBAM a monthly fee for its management
services at an annual rate of 1.00% of the Fund's average weekly net assets.
Certain officers and/or directors of the Fund are officers and/or directors
of SBAM.]
60
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
A DESCRIPTION OF THE RATING POLICIES OF MOODY'S AND S&P WITH RESPECT TO
BONDS APPEARS BELOW.
MOODY'S CORPORATE BOND RATINGS
AAA--Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
AA--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
A--Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.
BAA--Bonds which are rated "Baa" are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA--Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
CA--Bonds which are rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated "C" are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" in each generic rating
classification from Aa to Caa. The modifier "1" indicates that the security
ranks in the higher end of its generic rating category; the
A-1
<PAGE>
modifier "2" indicates a mid-range ranking; and the modifier "3" indicates
that the issue ranks in the lower end of its generic rating category.
S&P'S CORPORATE BOND RATINGS
AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to repay principal and pay interest.
AA--Bonds rated "AA" also qualify as high quality debt obligations. Capacity
to pay principal and interest is very strong, and differs from "AAA" issues
only in small degree.
A--Bonds rated "A" have a strong capacity to repay principal and pay
interest, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB--Bonds rated "BBB" are regarded as having an adequate capacity to repay
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for higher-rated categories.
BB-B-CCC-CC-C--Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CI--Bonds rated "CI" are income bonds on which no interest is being paid.
D--Bonds rated "D" are in default. The "D" category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS
Prime-1--Issuers (or related supporting institutions) rated Prime-1 have a
superior ability for repayment of short-term debt obligations. Prime-1
repayment ability will often be evidenced by leading market positions in well-
established industries, high rates or return on funds employed, conservative
capitalization structures with moderate reliance on debt and ample asset
protection, broad margins in earnings coverage of fixed financial charges and
high internal cash generation, and well-established access to a range of
financial markets and assured sources of alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated Prime-2 have a
strong ability for repayment of short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
A-2
<PAGE>
lesser degree. Earning trends and coverage ratio, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
Prime-3--Issuers (or related supporting institutions) rated Prime-3 have an
acceptable ability for repayment of short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Not Prime--Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. The categories are as follows:
"A-1'--A short-term obligation rated "A-1' is rated in the highest category
by Standard & Poor's. The obligor's capacity to meet its financial commitment
on the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
"A-2'--A short-term obligation rated "A-2' is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to
meet its financial commitment on the obligation is satisfactory.
"A-3'--A short-term obligation rated "A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
"B'--A short-term obligation rated "B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet
its financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet
its financial commitment on the obligation.
"C'--A short-term obligation rated "C' is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation.
"D'--A short-term obligation rated "D' is in payment default. The "D' rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D'
rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
A-3
<PAGE>
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<PAGE>
APPENDIX B
GENERAL CHARACTERISTICS AND RISKS OF HEDGING
AND OTHER STRATEGIC TRANSACTIONS
The Fund may engage in certain hedging and other strategic transactions. The
Fund will engage in such activities from time to time in SBAM's discretion and
may not necessarily be engaging in such activities when movements occur in
interest rates that could affect the value of the assets of the Fund. The
Fund's ability to pursue certain of these strategies may be limited by the
Commodity Exchange Act, as amended, applicable regulations of the CFTC and the
federal income tax requirements applicable to regulated investment companies
which are not operated as commodity pools.
INTEREST RATE TRANSACTIONS
The Fund may enter into interest rate swaps and may purchase interest rate
caps, floors and collars and may sell interest rate caps, floors and collars
that it has purchased. The Fund would enter into these transactions primarily
to preserve a return or spread on a particular investment or portion of its
portfolio, to manage the duration of its portfolio, to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date or to further the Fund's investment objectives and policies. Interest
rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate cap. The purchase of an interest
rate floor entitles the purchaser, to the extent that a specified index falls
below a predetermined interest rate, to receive payments of interest on a
notional principal amount from the party selling such interest rate floor. A
collar is a combination of a cap and a floor that preserves a certain return
within a predetermined range of interest rates or values.
The Fund may enter into interest rate swaps, caps, floors and collars on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or liabilities, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments on the payment date. To the extent these Derivative Transactions are
entered into for good faith hedging purposes, SBAM believes such obligations
do not constitute senior securities and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will accrue the net
amount of the excess, if any, of the Fund's obligations over its entitlements
with respect to each interest rate swap on a daily basis and will segregate
with a custodian an amount of cash or liquid securities having an aggregate
net asset value at least equal to the accrued excess. The Fund will not enter
into any interest rate swap, cap, floor or collar transaction unless the other
party thereto has been determined by SBAM to be creditworthy at the time of
entering into such transaction. If there is a default by the other party to
such a transaction, the Fund will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms
acting both as principals and as agents utilizing standardized swap
documentation. Caps, floors and collars are less liquid than swaps.
B-1
<PAGE>
PUT AND CALL OPTIONS ON SECURITIES AND INDICES
The Fund may purchase and sell put and call options on securities and
indices based upon the prices of securities. A put option on a security gives
the purchaser of the option the right to sell and the writer the obligation to
buy the underlying security at the exercise price during the option period.
The Fund may also purchase and sell options on indices based upon the prices
of securities ("index options"). Index options are similar to options on
securities except that, rather than taking or making delivery of securities
underlying the option at a specified price upon exercise, an index option
gives the holder the right to receive cash upon exercise of the option if the
level of the index upon which the option is based is greater, in the case of a
call, or less in the case of a put, than the exercise price of the option. The
purchase of a put option on a security would be designed to protect against a
decline in the market value of a security held by the Fund. A call option on a
security gives the purchaser of the option the right to buy and the writer the
obligation to sell the underlying security at the exercise price during the
option period. The purchase of a call option on a security would be intended
to protect the Fund against an increase in the price of a security that it
intended to purchase in the future. In the case of either put or call options
that it has purchased, if the option expires without being sold or exercised,
the Fund will experience a loss in the amount of the option premium plus any
related commissions. When the Fund sells put and call options, it receives a
premium as the seller of the option. The premium that the Fund receives for
writing the option will serve as a partial hedge, in the amount of the option
premium, against changes in the value of the securities in its portfolio.
During the term of the option, however, a covered call seller has, in return
for the premium on the option, given up the opportunity for capital
appreciation above the exercise price of the option if the value of the
underlying security increases, but has retained the risk of loss should the
price of the underlying security decline. Conversely, a secured put seller
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option, less the premium received on
the sale of the option. The Fund is authorized to purchase and sell exchange
listed options and over-the-counter options ("OTC Options") which are
privately negotiated with the counterparty to such contract. Listed options
are issued by the Options Clearing Corporation ("OCC"), which guarantees the
performance of the obligations of the parties to such options.
All such call options sold (written) by the Fund will be "covered" as long
as the call is outstanding (i.e., the Fund will own the instrument subject to
the call or other securities or assets acceptable under applicable segregation
and coverage rules). All such put options sold (written) by the Fund will be
secured by segregated assets consisting of cash or liquid assets having a
value not less than the exercise price.
The Fund's ability to close out its position as a purchaser or seller of an
exchange listed put or call option is dependent upon the existence of a liquid
secondary market. Among the possible reasons for the absence of a liquid
secondary market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange;
(iii) trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv)
interruption of the normal operations on an exchange; (v) inadequacy of the
facilities of an exchange or OCC to handle current trading volume; or (vi) a
decision by one or more exchanges to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options on that exchange that had been listed by the OCC
as a result of trades on that exchange would generally continue to be
exercisable in accordance with their terms. OTC Options are purchased from or
sold to dealers, financial institutions or other counterparties which have
entered into direct
B-2
<PAGE>
agreements with the Fund. With OTC Options, such variables as expiration date,
exercise price and premium will be agreed upon between the Fund and the
counterparty, without the intermediation of a third party such as the OCC. If
the counterparty fails to make or take delivery of the securities underlying
an option it has written, or otherwise fails to settle the transaction in
accordance with the terms of that option as written, the Fund would lose the
premium paid for the option as well as any anticipated benefit of the
transaction. As the Fund must rely on the credit quality of the counterparty
rather than the guarantee of the OCC, it will only enter into OTC options with
counterparties with the highest long-term credit ratings, and with primary
United States government securities dealers recognized by the Federal Reserve
Bank of New York.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the option markets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Characteristics. The Fund may purchase and sell futures contracts on
interest rates and securities indices and purchase and sell (write) put and
call options on such futures contracts traded on recognized domestic exchanges
as a hedge against anticipated interest rate changes or other market
movements. The sale of a futures contract creates an obligation by the Fund,
as seller, to deliver the specific type of financial instrument called for in
the contract at a specified future time for a specified price. Options on
futures contracts are similar to options on securities except that an option
on a futures contract gives the purchaser the right in return for the premium
paid to assume a position in a futures contract (a long position if the option
is a call and a short position if the option is a put).
Margin Requirements. At the time a futures contract is purchased or sold,
the Fund must allocate cash or securities as a deposit payment ("initial
margin"). It is expected that the initial margin that the Fund will pay may
range from approximately 1% to approximately 5% of the value of the
instruments underlying the contract. In certain circumstances, however, such
as during periods of high volatility, the Fund may be required by an exchange
to increase the level of its initial margin payment. Additionally, initial
margin requirements may be increased in the future pursuant to regulatory
action. An outstanding futures contract is valued daily and the payment in
cash of "variation margin" may be required, a process known as "marking to the
market." Transactions in listed options and futures are usually settled by
entering into an offsetting transaction, and are subject to the risk that the
position may not be able to be closed if no offsetting transaction can be
arranged.
Limitations on Use of Futures Contracts and Options on Futures
Contracts. The Fund's use of futures contracts and options on futures
contracts will in all cases be consistent with applicable regulatory
requirements and in particular, the rules and regulations of the CFTC. In
addition, the Fund may not sell futures contracts if the value of such futures
contracts exceeds the total market value of the Fund's portfolio securities.
The Fund may engage in transactions in futures contracts or options thereon
for speculative purposes or as a hedge against changes resulting from market
conditions in the values of securities in its portfolio. The Fund may enter
into futures contracts or options thereon for purposes other than bona fide
hedging if, immediately thereafter, the sum of the amount of its initial
margin and premiums on open contracts and options would not exceed 5% of the
liquidation value of the Fund's portfolio; provided further that in the case
of an option that is
B-3
<PAGE>
in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. Also, when required, a segregated
account of cash or cash equivalents will be maintained and marked to market in
an amount equal to the market value of the contract. SBAM reserves the right
to comply with such different standards as may be established from time to
time by CFTC rules and regulations with respect to the purchase and sale of
futures contracts and options thereon.
Segregation and Cover Requirements. Futures contracts, interest rate swaps,
caps, floors and collars, and options on securities, indices and futures
contracts sold by the Fund are generally subject to segregation and coverage
requirements established by either the CFTC or the Commission, with the result
that, if the Fund does not hold the instrument underlying the futures contract
or option, the Fund will be required to segregate on an ongoing basis with its
custodian, cash, U.S. government securities, or other liquid assets in an
amount at least equal to the Fund's obligations with respect to such
instruments. Such amounts will fluctuate as the market value of the
obligations increases or decreases. The segregation requirement can result in
the Fund maintaining positions it would otherwise liquidate and consequently
segregating assets with respect thereto at a time when it might be
disadvantageous to do so. In addition, with respect to futures contracts
purchased by the Fund, the Fund will also be subject to the segregation
requirements with respect to the value of the instruments underlying the
futures contract.
Derivative Transactions present certain risks. In particular, the variable
degree of correlation between price movements of hedging instruments and price
movements in the position being hedged creates the possibility that losses on
the hedge may be greater than gains in the value of the Fund's positions. In
addition, certain hedging instruments and markets may not be liquid in all
circumstances. As a result, in volatile markets, the Fund may not be able to
close out a transaction in certain of these instruments without incurring
losses substantially greater than the initial deposit. Although the
contemplated use of these instruments should tend to minimize the risk of loss
due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in the
value of such position. The ability of the Fund to hedge successfully will
depend on SBAM's ability to predict pertinent market movements, which cannot
be assured. Finally, the daily variation margin deposit requirements in
futures contracts that the Fund has sold create an ongoing greater potential
financial risk than do transactions in which the Fund has purchased options
where the exposure is limited to the cost of the initial premium and
transaction costs paid by the Fund. While the Fund may enter into Derivative
Transactions to hedge all or a portion of its portfolio, changes in the
directions of markets that are the subject of a hedge and fluctuations in
interest rates may result in a poorer overall performance for the Fund than if
it had not engaged in any such transactions. Losses due to Derivative
Transactions will reduce the Fund's net asset value.
The Fund's investments in Derivative Transactions may be limited by certain
provisions of the Internal Revenue Code of 1986, as amended. See "Taxation" in
this Prospectus.
CURRENCY TRANSACTIONS
As discussed in the Prospectus, the Fund may engage in currency transactions
with counterparties to hedge the value of portfolio securities denominated in
particular currencies against fluctuations in relative value or to generate
income or gain. The types of currency transactions the Fund may engage in are
described in the Prospectus. Transaction hedging is entering into a currency
transaction with respect to specific assets or liabilities of the Fund, which
will generally arise in connection with the purchase or sale of the Fund's
portfolio securities
B-4
<PAGE>
or the receipt of income from them. Position hedging is entering into a
currency transaction with respect to portfolio securities positions
denominated or generally quoted in that currency. The Fund will not enter into
a transaction to hedge currency exposure to an extent greater, after netting
all transactions intended wholly or partially to offset other transactions,
than the aggregate market value (at the time of entering into the transaction)
of the securities held by the Fund that are denominated or generally quoted in
or currently convertible into the currency, other than with respect to proxy
hedging as described below.
The Fund may cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to increase or
decline in value relative to other currencies to which the Fund has or in
which the Fund expects to have exposure. To reduce the effect of currency
fluctuations on the value of existing or anticipated holdings of its
securities, the Fund may also engage in proxy hedging. Proxy hedging is often
used when the currency to which the Fund's holdings is exposed is difficult to
hedge generally or difficult to hedge against the U.S. dollar. Proxy hedging
entails entering into a forward contract to sell a currency, the changes in
the value of which are generally considered to be linked to a currency or
currencies in which some or all of the Fund's securities are or are expected
to be denominated, and buying U.S. dollars. The amount of the contract would
not exceed the market value of the Fund's securities denominated in linked
currencies.
Currency transactions are subject to risks different from those of other
portfolio transactions. Currency hedging involves some of the same risks and
considerations as other transactions with similar instruments. Currency
transactions can result in losses to the Fund if the currency being hedged
fluctuates in value to a degree or in a direction that is not anticipated.
Further, the risk exists that the perceived linkage between various currencies
may not be present or may not be present during the particular time that the
Fund is engaging in proxy hedging. Currency transactions are also subject to
risks different from those of other portfolio transactions. Because currency
control is of great importance to the issuing governments and influences
economic planning and policy, purchases and sales of currency and related
instruments can be adversely affected by government exchange controls,
limitations or restrictions on repatriation of currency, and manipulations or
exchange restrictions imposed by governments. These forms of governmental
actions can result in losses to the Fund if it is unable to deliver or receive
currency or monies in settlement of obligations and could also cause hedges it
has entered into to be rendered useless, resulting in full currency exposure
as well as the incurrence of transaction costs. Buyers and sellers of currency
futures contracts are subject to the same risks that apply to the use of
futures contracts generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures contracts is relatively
new, and the ability to establish and close out positions on these options is
subject to the maintenance of a liquid market that may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
a country's economy.
B-5
<PAGE>
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<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS IN CONNECTION WITH THIS OFFERING, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND, ITS INVESTMENT ADVISER OR THE UNDERWRIT-
ERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE FUND SINCE THE DATE HEREOF OR THAT THE INFORMA-
TION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCE IN WHICH SUCH AN OFFER OR SOLICITA-
TION IS UNLAWFUL.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors and Special Considerations.................................. 8
Fee Table................................................................ 18
The Fund................................................................. 19
Use of Proceeds.......................................................... 19
Investment Objectives and Policies....................................... 20
Additional Investment Activities......................................... 26
Investment Restrictions.................................................. 34
Management of the Fund................................................... 35
Portfolio Transactions................................................... 42
Dividends and Distributions; Dividend Reinvestment Plan.................. 43
Taxation................................................................. 46
Net Asset Value.......................................................... 51
Description of Capital Stock............................................. 51
Custodian, Transfer Agent, Dividend Paying Agent and Registrar........... 55
Underwriting............................................................. 56
Experts.................................................................. 58
Legal Matters............................................................ 58
Further Information...................................................... 58
Report of Independent Accountants........................................ 59
Salomon Brothers High Income Fund II Inc--Statement of Assets and
Liabilities............................................................. 60
Appendix A: Description of Ratings....................................... A-1
Appendix B: General Characteristics and Risks of Hedging and Other
Strategic Transactions.................................................. B-1
</TABLE>
-----------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,000 SHARES
SALOMON BROTHERS
HIGH INCOME
FUND II INC
COMMON STOCK
($.001 PAR VALUE)
-------
PROSPECTUS
, 1998
-------
SALOMON SMITH BARNEY
A.G. EDWARDS & SONS, INC.
ADVEST, INC.
EVEREN SECURITIES, INC.
FAHNESTOCK & CO. INC.
JANNEY MONTGOMERY SCOTT INC.
LEGG MASON WOOD WALKER
INCORPORATED
MCDONALD & COMPANY
SECURITIES, INC.
MORGAN KEEGAN & COMPANY, INC.
THE ROBINSON-HUMPHREY COMPANY
TUCKER ANTHONY
INCORPORATED
WEDBUSH MORGAN SECURITIES
- -------------------------------------------------------------------------------
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<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
Exhibits
<TABLE>
<C> <S>
(2)(a)(1) --Articles of Incorporation of the Registrant are incorporated
herein by reference to Exhibit 2(a) of Registrant's Registration
Statement on Form N-2 filed on March 20, 1998.
(2) --Articles of Amendment
(b) --By-Laws
(c) --Not Applicable
(d)(1) --Specimen Stock Certificate
(2) --Articles V and VIII of Registrant's Articles of Incorporation and
Article II of Registrant's By-Laws are incorporated herein by
reference to Exhibits 2(a)(1) and 2(b) hereof, respectively.
(e) --Form of Dividend Reinvestment Plan
(f) --Not Applicable
(g) --Form of Investment Management Agreement
(h)(1) --Form of Underwriting Agreement
(2) --Form of Master Agreement Among Underwriters
(3) --Form of Selling Agreement
(i) --Not Applicable
(j) --Form of Custodian Agreement*
(k)(1) --Form of Administration Agreement
(2) --Form of Transfer Agency and Services Agreement
(l) --Opinion and Consent of Counsel*
(m) --Not Applicable
(n) --Consent of Independent Accountants*
(o) --Not Applicable
(p) --Form of Stock Purchase Agreement
(q) --Not Applicable
(r) --Financial Data Schedule*
</TABLE>
ITEM 25. MARKETING ARRANGEMENTS
See Exhibits 2(h)(1), 2(h)(2) and 2(h)(3) to this Registration Statement.
- --------
* To be filed by amendment.
C-1
<PAGE>
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<S> <C>
SEC Registration fees............................................... $20,355
New York Stock Exchange listing fee.................................
Printing and engraving expenses.....................................
Auditing fees and expenses..........................................
Legal fees and expenses.............................................
NASD Fees...........................................................
Miscellaneous.......................................................
-------
Total............................................................. $
=======
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not Applicable.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
<S> <C>
Common Stock, par value $.001 per share............. None
</TABLE>
ITEM 29. INDEMNIFICATION
Under the Registrant's Articles of Incorporation, as amended, and By-Laws,
the directors and officers of the Registrant will be (and employees and agents
of the Registrant may be) indemnified to the fullest extent allowed and in the
manner provided by Maryland law and applicable provisions of the Investment
Company Act of 1940, as amended, including advancing of expenses incurred in
connection therewith. Indemnification shall not be provided, however, to any
person against any liability to the Registrant or its security-holders to
which he or she would otherwise be subject by reasons of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his or her office.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to the directors and officers, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is
therefore unenforceable. If a claim for indemnification against such
liabilities under the Securities Act of 1933 (other than for expenses incurred
in a successful defense) is asserted against the Registrant by the directors
or officers in connection with the Common Stock, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
such Act and will be governed by the final adjudication of such issue.
Reference is made to Section Eight of the Underwriting Agreement, a form of
which is filed as Exhibit 2(h)(1) hereto, for provisions relating to the
indemnification of the Underwriters.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF ADVISER
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and directors of Salomon Brothers
Asset Management Inc ("SBAM"), reference is made to SBAM's current Form ADV
filed under the Investment Advisers Act of 1940, incorporated herein by
reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Registrant are maintained at the office of
SBAM at Seven World Trade Center, New York, New York 10048.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
C-2
<PAGE>
ITEM 33. UNDERTAKINGS
(1) Registrant undertakes to suspend the offering of Common Stock until the
prospectus is amended, if subsequent to the effective date of this
registration statement, its net asset value declines more than ten percent
from its net asset value as of the effective date of the registration
statement or its net asset value increases to an amount greater than its net
proceeds as stated in the prospectus.
(2) Not applicable.
(3) Not applicable.
(4) Registrant undertakes:
a. to file, during any period in which offers or sales are being made, a
post-effective amendment to the registration statement:
(1) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(2) to reflect in the prospectus any facts or events after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement; and
(3) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
b. that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of those securities at that time shall be
deemed to be the initial bona fide offering thereof; and
c. to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(5) Registrant undertakes that, for the purpose of determining any liability
under the Securities Act, the information omitted from the form of prospectus
filed as part of the Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
497(h) will be deemed to be a part of the Registration Statement as of the
time it was declared effective.
Registrant undertakes that, for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form
of prospectus will be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time will be deemed to be the initial bona fide offering thereof.
(6) Not Applicable.
C-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, HEREUNTO
DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK ON THE 29TH DAY OF
APRIL, 1998.
Salomon Brothers High Income Fund II
Inc
/s/ Heath B. McLendon
By: _________________________________
HEATH B. MCLENDON
PRESIDENT
/s/ Alan M. Mandel
By: _________________________________
ALAN M. MANDEL
TREASURER & CHIEF FINANCIAL
OFFICER
POWER OF ATTORNEY
The undersigned directors of SALOMON BROTHERS HIGH INCOME FUND II INC (the
"Fund") hereby appoint Heath B. McLendon, Robert A. Vegliante, Esq. and Alan
M. Mandel, or any one of them, as attorney-in-fact and agent, in all
capacities, to execute, and to file any of the documents referred to below
relating to a Registration Statement under the Securities Act of 1933 and/or
the Investment Company Act of 1940, including any and all amendments thereto,
all exhibits and any and all documents required to be filed with respect
thereto with any regulatory authority. Each of the undersigned grants to each
of said attorneys full authority to do every act necessary to be done in order
to effectuate the same as fully, to all intents and purposes, as he could do
if personally present, thereby ratifying all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Heath B. McLendon
- ------------------------------------- Chairman of the April 29, 1998
HEATH B. MCLENDON Board and President
/s/ Charles F. Barber
- ------------------------------------- Director April 29, 1998
CHARLES F. BARBER
/s/ Daniel P. Cronin
- ------------------------------------- Director April 29, 1998
DANIEL P. CRONIN
/s/ Riordan Roett
- ------------------------------------- Director April 29, 1998
RIORDAN ROETT
/s/ Jeswald W. Salacuse
- ------------------------------------- Director April 29, 1998
JESWALD W. SALACUSE
C-4
<PAGE>
SCHEDULE OF EXHIBITS TO FORM N-2
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S> <C>
Exhibit 2(a)(2) Articles of Amendment
Exhibit 2(b) By-Laws
Exhibit 2(d)(1) Specimen Stock Certificate
Exhibit 2(e) Form of Dividend Reinvestment Plan
Exhibit 2(g) Form of Investment Management Agreement
Exhibit 2(h)(l) Form of Underwriting Agreement
Exhibit 2(h)(2) Form of Master Agreement Among Underwriters
Exhibit 2(h)(3) Form of Selling Agreement
Exhibit 2(k)(1) Form of Administration Agreement
Exhibit 2(k)(2) Form of Transfer Agency and Services Agreement
Exhibit 2(p) Form of Stock Purchase Agreement
</TABLE>
<PAGE>
EXHIBIT 99.2a2
SALOMON BROTHERS HIGH YIELD BOND FUND INC
ARTICLES OF AMENDMENT
SALOMON BROTHERS HIGH YIELD BOND FUND INC, a Maryland corporation,
having its principal office in Baltimore City, Maryland (which is hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended as follows:
Article II of the Charter is amended in its entirety to read as
follows:
NAME
----
The name of the corporation (which is hereinafter called the
"Corporation") is "Salomon Brothers High Income Fund II Inc".
SECOND: The amendment does not increase the authorized stock of the
Corporation.
THIRD: The foregoing amendment to the Charter of the Corporation has
been approved by a majority of the entire Board of Directors and no stock
entitled to be voted on the matter was outstanding or subscribed for at the time
of approval.
<PAGE>
2
IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its President and witnessed by its
Secretary on April 15, 1998.
WITNESS: SALOMON BROTHERS HIGH YIELD BOND FUND INC
/s/ Robert A. Vegliante By:/s/ Heath B. McLendon
- ---------------------------- -------------------------------
Robert A. Vegliante, Esq. Heath B. McLendon
Secretary President
THE UNDERSIGNED, President of Salomon Brothers High Yield Bond Fund
Inc, who executed on behalf of the Corporation the foregoing Articles of
Amendment of which this certificate is made a part, hereby acknowledges in the
name and on behalf of said Corporation the foregoing Articles of Amendment to be
the corporate act of said Corporation and hereby certifies that to the best of
his knowledge, information, and belief the matters and facts set forth therein
with respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ Heath B. McLendon
--------------------------
Heath B. McLendon
President
<PAGE>
Exhibit 99.2b
BY-LAWS
OF
SALOMON BROTHERS HIGH INCOME FUND II INC
A Maryland Corporation
ARTICLE I
---------
OFFICES
-------
SECTION 1. Principal Office in Maryland. Salomon Brothers High Yield
----------------------------
Bond Fund Inc (the "Corporation") shall have a principal office in the City of
Baltimore, State of Maryland.
SECTION 2. Other Offices. The Corporation may have offices also at
-------------
such other places within and without the State of Maryland as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE II
----------
STOCKHOLDERS
------------
SECTION 1. Annual Meetings. The annual meeting of the stockholders
---------------
of the Corporation shall be held on a date not less than ninety (90) days nor
more than one hundred twenty (120) days following the end of the Corporation's
fiscal year fixed from time to time by the Board of Directors. An annual
meeting may be held at any place in or out of the State of Maryland and at any
time, each as may be determined by the Board of Directors and designated in the
notice of the meeting. Any business of the Corporation may be transacted at an
annual meeting without the purposes having been specified in the notice unless
otherwise provided by statute, the Corporation's Articles of Incorporation, as
amended from time to time (the "Charter"), or these By-Laws.
SECTION 2. Special Meetings. Special meetings of the stockholders
----------------
for any purpose or purposes, unless otherwise prescribed by statute or by the
Corporation's Charter, may be held at any place within the United States, and
may be called at any time by the Board of Directors or by the Chairman or the
President, and shall be called by the Secretary (or in his absence, an Assistant
Secretary) at the request in writing
<PAGE>
2
of a majority of the Board of Directors or at the request in writing of
stockholders entitled to cast at least a majority of the votes entitled to be
cast at the meeting upon payment by such stockholders to the Corporation of the
reasonably estimated cost of preparing and mailing a notice of the meeting
(which estimated cost shall be provided to such stockholders by the Secretary of
the Corporation). A written request shall state the purpose or purposes of the
proposed meeting.
SECTION 3. Notice of Meetings. Written or printed notice of the
------------------
purpose or purposes and of the time and place of every meeting of the
stockholders shall be given by the Secretary of the Corporation to each
stockholder of record entitled to vote at or to notice of the meeting, by
placing the notice in the mail at least ten (10) days, but not more than ninety
(90) days, prior to the date designated for the meeting addressed to each
stockholder at his address appearing on the books of the Corporation or supplied
by the stockholder to the Corporation for the purpose of notice. Notice of any
meeting of stockholders shall be deemed waived by any stockholder who attends
the meeting in person or by proxy, or who before or after the meeting submits a
signed waiver of notice that is filed with the records of the meeting.
SECTION 4. Notice of Stockholder Business.
------------------------------
(a) At any annual or special meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual or special meeting, the
business must be (i) (A) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (B) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (C) otherwise properly brought before the meeting by a stockholder
and (ii) a proper subject under applicable law for stockholder action.
(b) For business to be properly brought before an annual or special
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, any such notice
must be delivered to or mailed and received at the principal executive offices
of the Corporation not later than 60 days prior to the date of the meeting;
provided, however, that if less than 70 days notice or prior public disclosure
of the date of the meeting is given or made to stockholders, any such notice by
a stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which notice of the date of the
annual or special meeting was given or such public disclosure was made.
(c) Any such notice by a stockholder shall set forth as to each
matter the stockholder proposes to bring before the annual or special meeting
(i) a brief description of the business desired to be brought before the annual
or special meeting and the reasons for conducting such business at the annual or
special meeting, (ii) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business, (iii) the class and number of
shares of the capital stock of the Corporation which are beneficially owned by
the stockholder, and (iv) any material interest of the stockholder in such
business.
<PAGE>
3
(d) Notwithstanding anything in the By-Laws to the contrary, no
business shall be conducted at any annual or special meeting except in
accordance with the procedures set forth in this Section 4. The Chairman of the
annual or special meeting shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 4, and if he should so determine,
he shall so declare to the meeting that any such business not properly brought
before the meeting shall not be considered or transacted.
SECTION 5. Quorum; Voting. Except as otherwise provided by statute
--------------
or by the Corporation's Charter, the presence in person or by proxy of
stockholders of the Corporation entitled to cast at least a majority of the
votes entitled to be cast shall constitute a quorum at each meeting of the
stockholders. A majority of the votes cast at a meeting at which a quorum is
present is sufficient to approve any matter which properly comes before the
meeting. In the absence of a quorum, the stockholders present in person or by
proxy at the meeting, by majority vote and without notice other than by
announcement at the meeting, may adjourn the meeting from time to time as
provided in this Section 5 until a quorum shall attend. The stockholders
present at any duly organized meeting may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
SECTION 6. Adjournment. Any meeting of the stockholders may be
-----------
adjourned from time to time, without notice other than by announcement at the
meeting at which the adjournment is taken. At any adjourned meeting at which a
quorum shall be present any action may be taken that could have been taken at
the meeting originally called. A meeting of the stockholders may not be
adjourned to a date more than one hundred twenty (120) days after the original
record date.
SECTION 7. Organization. At every meeting of the stockholders, the
------------
Chairman of the Board, or in his absence or inability to act, the President, or
in his absence or inability to act, a Vice President, or in the absence or
inability to act of all the Vice Presidents, a chairman chosen by the
stockholders, shall act as chairman of the meeting. The Secretary, or in his or
her absence or inability to act, a person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep the minutes of the
meeting.
SECTION 8. Order of Business. The order of business at all meetings
-----------------
of the stockholders shall be as determined by the chairman of the meeting.
SECTION 9. Proxies. A stockholder may vote the stock he owns of
-------
record either in person or by written proxy signed by the stockholder or by his
duly authorized agent. No proxy shall be valid after the expiration of eleven
(11) months from the date thereof, unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the stockholder executing it,
except in those cases in which the proxy states that it is irrevocable and in
which an irrevocable proxy is permitted by law.
<PAGE>
4
SECTION 10. Fixing of Record Date for Determining Stockholders
--------------------------------------------------
Entitled to Vote at Meeting. The Board of Directors may set a record date for
- ---------------------------
the purpose of determining stockholders entitled to vote at any meeting of the
stockholders. The record date for a particular meeting shall be not more than
ninety (90) nor fewer than ten (10) days before the date of the meeting. All
persons who were holders of record of shares as of the record date of a meeting,
and no others, shall be entitled to notice of and to vote at such meeting and
any adjournment thereof.
SECTION 11. Inspectors. The Board of Directors may, in advance of
----------
any meeting of stockholders, appoint one (1) or more inspectors to act at the
meeting or at any adjournment of the meeting. If the inspectors shall not be so
appointed or if any of them shall fail to appear or act, the chairman of the
meeting may appoint inspectors. Each inspector, before entering upon the
discharge of his duties, shall, if required by the chairman of the meeting, take
and sign an oath to execute faithfully the duties of inspector at the meeting
with strict impartiality and according to the best of his ability. The
inspectors, if appointed, shall determine the number of shares outstanding and
the voting power of each share, the number of shares represented at the meeting,
the existence of a quorum and the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do those acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting or any stockholder entitled to vote at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No director or candidate for the office of director shall act as
inspector of an election of directors. Inspectors need not be stockholders of
the Corporation.
SECTION 12. Consent of Stockholders in Lieu of Meeting. Except as
------------------------------------------
otherwise provided by statute or the Corporation's Charter, any action required
or permitted to be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if the
following are filed with the records of stockholders' meetings: (a) a unanimous
written consent that sets forth the action and is signed by each stockholder
entitled to vote on the matter and (b) a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at the meeting.
ARTICLE III
-----------
BOARD OF DIRECTORS
------------------
SECTION 1. General Powers. Except as otherwise provided in the
--------------
Corporation's Charter, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or
<PAGE>
5
under authority of the Board of Directors except as conferred on or reserved to
the stockholders by law, by the Corporation's Charter or by these By-Laws.
SECTION 2. Number, Election and Term of Directors. The number of
--------------------------------------
directors constituting the entire Board of Directors (which initially was fixed
at two (2) in the Corporation's Charter) may be changed from time to time by a
majority of the entire Board of Directors; provided, however, that the number of
directors shall in no event be fewer than that required by law, nor more than
twelve (12). Beginning with the first annual meeting of stockholders of the
Corporation and if at such time, the number of directors shall be three (3) or
more, (the "First Annual Meeting"), the Board of Directors of the Corporation
shall be divided into three classes: Class I, Class II and Class III. At the
First Annual Meeting, directors of Class I shall be elected to the Board of
Directors for a term expiring at the next succeeding annual meeting of
stockholders, directors of Class II shall be elected to the Board of Directors
for a term expiring at the second succeeding annual meeting of stockholders and
directors of Class III shall be elected to the Board of Directors for a term
expiring at the third succeeding annual meeting of stockholders. At each
subsequent annual meeting of stockholders, the directors chosen to succeed those
whose terms are expiring shall be identified as being of the same class as the
directors whom they succeed and shall be elected for a term expiring at the time
of the third succeeding annual meeting of stockholders subsequent to their
election. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 5 of this Article III, and each
director elected shall hold office for the term provided above and until his
successor shall have been elected and shall have qualified, or until his death,
or until he shall have resigned or have been removed as provided in these By-
Laws, or as otherwise provided by statute or the Corporation's Charter. Any
vacancy created by an increase in directors may be filled in accordance with
Section 5 of this Article III. No reduction in the number of directors shall
have the effect of removing any director from office prior to the expiration of
his term unless the director is specifically removed pursuant to Section 4 of
this Article III at the time of the decrease.
SECTION 3. Resignation. A director of the Corporation may resign at
-----------
any time by giving written notice of his resignation to the Board of Directors
or the Chairman of the Board or to the Vice-Chairman of the Board or the
President or the Secretary of the Corporation. Any resignation shall take
effect at the time specified in it or, should the time when it is to become
effective not be specified in it, immediately upon its receipt. Acceptance of a
resignation shall not be necessary to make it effective unless the resignation
states otherwise.
SECTION 4. Removal of Directors. A director of the Corporation may
--------------------
be removed from office only for cause and only by vote of the holders of at
least seventy-five percent (75%) of the votes entitled to be cast for the
election of directors.
SECTION 5. Vacancies. Subject to the provisions of the Investment
---------
Company Act of 1940 (the "1940 Act"), any vacancies in the Board of Directors,
whether arising from death, resignation, removal or any other cause except an
increase in the number of directors,
<PAGE>
6
shall be filled by a vote of the majority of the remaining Directors whether or
not sufficient to constitute a quorum. A majority of the entire Board may fill
a vacancy that results from an increase in the number of directors.
Notwithstanding the foregoing, if the stockholders of any class of the
Corporation's capital stock are entitled separately to elect one or more
directors, a majority of the remaining directors elected by that class or the
sole remaining director elected by that class may fill any vacancy among the
number of directors elected by that class. Any director appointed by the Board
of Directors to fill a vacancy shall hold office only until the next annual
meeting of stockholders of the Corporation and until a successor has been
elected and qualifies. Any director elected by the stockholders to fill a
vacancy shall hold office for the balance of the term of the director he
replaced.
SECTION 6. Place of Meetings. Meetings of the Board may be held at
-----------------
any place that the Board of Directors may from time to time determine or that is
specified in the notice of the meeting.
SECTION 7. Regular Meetings. Regular meetings of the Board of
----------------
Directors may be held without notice at the time and place determined by the
Board of Directors.
SECTION 8. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by two (2) or more directors of the Corporation or by
the Chairman of the Board or the President.
SECTION 9. Annual Meeting. The annual meeting of the newly elected
--------------
and other directors shall be the first meeting after the meeting of the
stockholders at which the newly elected directors were elected. No notice of
such annual meeting shall be necessary if such meeting is held immediately after
the adjournment, and at the site, of the meeting of stockholders. If not so
held, notice shall be given as hereinafter provided for special meetings of the
Board of Directors.
SECTION 10. Notice of Special Meetings. Notice of each special
--------------------------
meeting of the Board of Directors shall be given by the Secretary as hereinafter
provided. Each notice shall state the time and place of the meeting and shall
be delivered to each director, either personally or by telephone or other
standard form of telecommunication, at least twenty-four (24) hours before the
time at which the meeting is to be held, or by first-class mail, postage
prepaid, addressed to the director at his residence or usual place of business,
and mailed at least three (3) days before the day on which the meeting is to be
held.
SECTION 11. Waiver of Notice of Meetings. Notice of any special
----------------------------
meeting need not be given to any director who shall, either before or after the
meeting, sign a written waiver of notice that is filed with the records of the
meeting or who shall attend the meeting.
SECTION 12. Quorum and Voting. A majority of the entire Board of
-----------------
Directors shall constitute a quorum for the transaction of business, and except
as otherwise expressly required by statute, the Corporation's Charter or these
By-Laws, the act of a
<PAGE>
7
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board. In the absence of a quorum at any meeting of the
Board, a majority of the directors present may adjourn the meeting to another
time and place until a quorum shall be present. Notice of the time and place of
any adjourned meeting shall be given to the directors who were not present at
the time of the adjournment and, unless the time and place were announced at the
meeting at which the adjournment was taken, to the other directors.
SECTION 13. Organization. The Chairman of the Board shall preside at
------------
each meeting of the Board. In the absence or inability of the Chairman of the
Board to act, the President (if he is a director), or, in his absence or
inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside at the meeting. The
Secretary (or, in his or her absence or inability to act, any person appointed
by the chairman) shall act as secretary of the meeting and keep the minutes of
the meeting.
SECTION 14. Committees. The Board of Directors may designate one (1)
----------
or more committees of the Board of Directors, including an executive committee,
each consisting of one (1) or more directors. To the extent provided in the
resolutions adopted by the Board of Directors, and permitted by law, the
committee or committees shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation. Any
committee or committees shall have the name or names determined from time to
time by resolution adopted by the Board of Directors. Each committee shall keep
regular minutes of its meetings and provide those minutes to the Board of
Directors when required. The members of a committee present at any meeting,
whether or not they constitute a quorum, may appoint a director to act in the
place of an absent member.
SECTION 15. Written Consent of Directors in Lieu of a Meeting.
-------------------------------------------------
Subject to the provisions of the 1940 Act, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee of the
Board may be taken without a meeting if all members of the Board or committee,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of the Board or committee.
SECTION 16. Telephone Conference. Members of the Board of Directors
--------------------
or any committee of the Board may participate in any Board or committee meeting
by means of a conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other at the
same time. Participation by such means shall constitute presence in person at
the meeting, provided, however, that such participation shall not constitute
presence in person with respect to matters which the 1940 Act, and the rules
thereunder require the approval of directors by vote cast in person at a
meeting.
SECTION 17. Compensation. Each director shall be entitled to receive
------------
compensation, if any, as may from time to time be fixed by the Board of
Directors, including a fee for each meeting of the Board or any committee
thereof, regular or special, he attends.
<PAGE>
8
Directors may also be reimbursed by the Corporation for all reasonable expenses
incurred in traveling to and from the place of a Board or committee meeting.
ARTICLE IV
----------
OFFICERS, AGENTS AND EMPLOYEES
------------------------------
SECTION 1. Number and Qualifications. The officers of the
-------------------------
Corporation shall be a Chairman, a President, a Secretary, a Treasurer, and an
Assistant Secretary, each of whom shall be elected by the Board of Directors.
The Board of Directors may elect or appoint a Chairman of the Board of
Directors, and one (1) or more Vice Presidents and may also appoint any other
officers, assistant officers, agents and employees it deems necessary or proper.
Any two (2) or more offices may be held by the same person, except the offices
of President and Vice President, but no officer shall execute, acknowledge or
verify in more than one (1) capacity any instrument required by law to be
executed, acknowledged or verified by more than one officer. Officers shall be
elected by the Board of Directors each year at its first meeting held after the
annual meeting of stockholders, each to hold office until the meeting of the
Board following the next annual meeting of the stockholders and until his
successor shall have been duly elected and shall have qualified, or until his
death, or until he shall have resigned or have been removed, as provided in
these By-Laws. The Board of Directors may from time to time elect such officers
(including one or more Assistant Vice Presidents, one or more Assistant
Treasurers and one or more Assistant Secretaries) and may appoint, or delegate
to the President the power to appoint, such agents as may be necessary or
desirable for the business of the Corporation. Such other officers and agents
shall have such duties and shall hold their offices for such terms as may be
prescribed by the Board or by the appointing authority.
SECTION 2. Resignations. Any officer of the Corporation may resign
------------
at any time by giving written notice of his resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary. Any
resignation shall take effect at the time specified therein or, if the time when
it shall become effective is not specified therein, immediately upon its
receipt. The acceptance of a resignation shall not be necessary to make it
effective unless otherwise stated in the resignation.
SECTION 3. Removal of Officer, Agent or Employee. Any officer, agent
-------------------------------------
or employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate the power of removal as to
agents and employees not elected or appointed by the Board of Directors.
Removal shall be without prejudice to the person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
SECTION 4. Vacancies. A vacancy in any office, whether arising from
---------
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of
<PAGE>
9
the office that shall be vacant, in the manner prescribed in these By-Laws for
the regular election or appointment to the office.
SECTION 5. Compensation. The compensation of the officers of the
------------
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer with respect to other officers under his control.
SECTION 6. Bonds or Other Security. If required by the Board, any
-----------------------
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in an amount and with any
surety or sureties as the Board may require.
SECTION 7. Chairman of the Board of Directors. The Chairman of the
----------------------------------
Board of Directors shall be the chief executive officer of the Corporation and
shall have, subject to the control of the Board of Directors, general and active
management and supervision of the business, affairs, and property of the
Corporation and its several officers and may employ and discharge employees and
agents of the Corporation, except those elected or appointed by the Board, and
he may delegate these powers. The Chairman shall preside at all meetings of the
stockholders and of the Board of Directors. He shall execute on behalf of the
Corporation all instruments requiring such execution except to the extent that
signing and execution thereof shall be required by the President of the
Corporation or shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation.
SECTION 8. Vice-Chairman of the Board of the Directors. The Vice-
--------------------------------- ---------
Chairman of the Board of Directors shall, in the absence of the Chairman of the
Board, preside at all meetings of the stockholders and directors. He shall have
and exercise all the powers and authority of the Chairman of the Board in the
event of the Chairman's absence or inability to act or during a vacancy in the
office of Chairman of the Board. He shall also have such other duties and
responsibilities as shall be assigned to him by the Chairman or the Board of
Directors.
SECTION 9. President. The President shall, in the absence of the
---------
Chairman and Vice-Chairman of the Board of Directors, preside at all meetings of
the stockholders and directors. He shall have and exercise all the powers and
authority of the Chairman of the Board in the event of the Chairman's and Vice-
Chairman's absence or inability to act or during a vacancy in the offices of
Chairman and Vice-Chairman of the Board. He shall sign and execute all
instruments required to be signed and executed by the President of the
Corporation. He shall also have such other duties and responsibilities as shall
be assigned to him by the Chairman or the Board of Directors.
SECTION 10. Vice President. Each Vice President shall have the
--------------
powers and perform the duties that the Board of Directors or the Chairman of the
Board may from time to time prescribe.
<PAGE>
10
SECTION 11. Treasurer. Subject to the provisions of any contract
---------
that may be entered into with any custodian pursuant to authority granted by the
Board of Directors, the Treasurer shall have charge of all receipts and
disbursements of the Corporation and shall have or provide for the custody of
the Corporation's funds and securities; he shall have full authority to receive
and give receipts for all money due and payable to the Corporation, and to
endorse checks, drafts, and warrants, in its name and on its behalf and to give
full discharge for the same; he shall deposit all funds of the Corporation,
except those that may be required for current use, in such banks or other places
of deposit as the Board of Directors may from time to time designate; and, in
general, he shall perform all duties incident to the office of Treasurer and
such other duties as may from time to time be assigned to him by the Board of
Directors or the Chairman of the Board.
SECTION 12. Assistant Treasurers. The Assistant Treasurers in the
--------------------
order of their seniority, unless otherwise determined by the Chairman of the
Board or the Board of Directors, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer. They
shall perform such other duties and have such other powers as the Chairman or
the Board of Directors may from time to time prescribe.
SECTION 13. Secretary. The Secretary shall:
---------
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation
(unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
by the Board of Directors or the Chairman of the Board.
SECTION 14. Assistant Secretaries. The Assistant Secretaries in the
---------------------
order of their seniority, unless otherwise determined by the Chairman of the
Board or the Board of Directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary. They
shall perform such other duties and have such other powers as the President or
the Board of Directors may from time to time prescribe.
<PAGE>
11
SECTION 15. Delegation of Duties. In case of the absence of any
--------------------
officer of the Corporation, or for any other reason that the Board of Directors
may deem sufficient, the Board may confer for the time being the powers or
duties, or any of them, of such officer upon any other officer or upon any
director.
ARTICLE V
---------
STOCK
-----
SECTION 1. Stock Certificates. Unless otherwise provided by the
------------------
Board of Directors and permitted by law, each holder of stock of the Corporation
shall be entitled upon specific written request to such person as may be
designated by the Corporation to have a certificate or certificates, in a form
approved by the Board, representing the number of shares of stock of the
Corporation owned by him; provided, however, that certificates for fractional
shares will not be delivered in any case. The certificates representing shares
of stock shall be signed by or in the name of the Corporation by the Chairman of
the Board, the Vice-Chairman of the Board, the President or a Vice President and
by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and may be sealed with the seal of the Corporation. Any or all of the
signatures or the seal on the certificate may be facsimiles. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before the certificate is issued, it may be issued
by the Corporation with the same effect as if the officer, transfer agent or
registrar was still in office at the date of issue.
SECTION 2. Stock Ledger. There shall be maintained a stock ledger
------------
containing the name and address of each stockholder and the number of shares of
stock of each class the shareholder holds. The stock ledger may be in written
form or any other form which can be converted within a reasonable time into
written form for visual inspection. The original or a duplicate of the stock
ledger shall be kept at the principal office of the Corporation or at any other
office or agency specified by the Board of Directors.
SECTION 3. Transfers of Shares. Transfers of shares of stock of the
-------------------
Corporation shall be made on the stock records of the Corporation only by the
registered holder of the shares, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a transfer
agent or transfer clerk, and on surrender of the certificate or certificates, if
issued, for the shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of the share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions and
to vote as the owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
<PAGE>
12
SECTION 4. Regulations. The Board of Directors may authorize the
-----------
issuance of uncertificated securities if permitted by law. If stock
certificates are issued, the Board of Directors may make any additional rules
and regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. The Board may appoint, or authorize any officer or
officers to appoint, one or more transfer agents or one or more transfer clerks
and one or more registrars and may require all certificates for shares of stock
to bear the signature or signatures of any of them.
SECTION 5. Lost, Destroyed or Mutilated Certificates. The holder of
-----------------------------------------
any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of its loss, destruction or mutilation and
the Corporation may issue a new certificate of stock in the place of any
certificate issued by it that has been alleged to have been lost or destroyed or
that shall have been mutilated. The Board may, in its discretion, require the
owner (or his legal representative) of a lost, destroyed or mutilated
certificate to give to the Corporation a bond in a sum, limited or unlimited,
and in a form and with any surety or sureties, as the Board in its absolute
discretion shall determine, to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss or destruction of any such
certificate, or issuance of a new certificate. Anything herein to the contrary
notwithstanding, the Board of Directors, in its absolute discretion, may refuse
to issue any such new certificate, except pursuant to legal proceedings under
the laws of the State of Maryland.
SECTION 6. Fixing of Record Date for Dividends, Distributions, etc.
------------------------------------ ------------------
The Board may fix, in advance, a date not more than ninety (90) days preceding
the date fixed for the payment of any dividend or the making of any distribution
or the allotment of rights to subscribe for securities of the Corporation, or
for the delivery of evidences of rights or evidences of interests arising out of
any change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
SECTION 7. Information to Stockholders and Others. Any stockholder
--------------------------------------
of the Corporation or his agent may inspect and copy during the Corporation's
usual business hours these By-Laws, minutes of the proceedings of its
stockholders, annual statements of its affairs and voting trust agreements on
file at its principal office.
ARTICLE VI
----------
INDEMNIFICATION AND INSURANCE
-----------------------------
SECTION 1. Indemnification of Directors and Officers. Any person who
-----------------------------------------
was or is a party or is threatened to be made a party in any threatened, pending
or completed
<PAGE>
13
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is a current or former
director or officer of the Corporation, or is or was serving while a director or
officer of the Corporation at the request of the Corporation as a director,
officer, partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, enterprise or employee benefit plan, shall be
indemnified by the Corporation against judgments, penalties, fines, excise
taxes, settlements and reasonable expenses (including attorneys' fees) actually
incurred by such person in connection with such action, suit or proceeding to
the full extent permissible under the Maryland General Corporation Law, the
Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act, as those
statutes are now or hereafter in force, except that such indemnity shall not
protect any such person against any liability to the Corporation or any
stockholder thereof 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 his office ("disabling conduct").
SECTION 2. Advances. Any current or former director or officer of
--------
the Corporation claiming indemnification within the scope of this Article VI
shall be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with proceedings to which he is a party
in the manner and to the full extent permissible under the Maryland General
Corporation Law, the 1933 Act, and the 1940 Act, as those statutes are now or
hereafter in force; provided, however, that the person seeking indemnification
shall provide to the Corporation a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Corporation
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, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form
and amount acceptable to the Corporation for his undertaking; (b) the
Corporation is insured against losses arising by reason of the advance; or (c) a
majority of a quorum of directors of the Corporation who are neither "interested
persons" as defined in Section 2(a)(19) of the 1940 Act, nor parties to the
proceeding ("disinterested non-party directors"), or independent legal counsel,
in a written opinion, shall determine, based on a review of facts readily
available to the Corporation at the time the advance is proposed to be made,
that there is reason to believe that the person seeking indemnification will
ultimately be found to be entitled to indemnification.
SECTION 3. Procedure. At the request of any current or former
---------
director or officer, or any employee or agent whom the Corporation proposes to
indemnify, the Board of Directors shall determine, or cause to be determined, in
a manner consistent with the Maryland General Corporation Law, the 1933 Act, and
the 1940 Act, as those statutes are now or hereafter in force, whether the
standards required by this Article VI have been met; provided, however, that
indemnification shall be made only following: (a) a final decision on the
merits by a court or other body before whom the proceeding was brought, finding
that the person to be indemnified was not liable by reason of disabling conduct
or (b) in the absence of such a decision, a reasonable determination, based upon
a review of the facts, that the person to be indemnified was not liable by
reason of disabling conduct, by (i) the vote of a
<PAGE>
14
majority of a quorum of disinterested non-party directors or (ii) an independent
legal counsel in a written opinion.
SECTION 4. Indemnification of Employees and Agents. Employees and
---------------------------------------
agents who are not officers or directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, in
accordance with the procedures set forth in this Article VI to the extent
permissible under the Maryland General Corporation Law, the 1933 Act, and the
1940 Act, as those statutes are now or hereafter in force, and to such further
extent, consistent with the foregoing, as may be provided by action of the Board
of Directors or by contract.
SECTION 5. Other Rights. The indemnification provided by this
------------
Article VI shall not be deemed exclusive of any other right, with respect to
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 6. Insurance. The Corporation shall have the power to
---------
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or who, while a
director, officer, employee or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation, partnership, joint venture,
trust, enterprise or employee benefit plan, against any liability asserted
against and incurred by him in any such capacity, or arising out of his status
as such, provided that no insurance may be obtained by the Corporation for
liabilities against which it would not have the power to indemnify him under
this Article VI or applicable law.
ARTICLE VII
-----------
SEAL
----
The seal of the Corporation shall be circular in form and shall bear
the name of the Corporation, the year of its incorporation, the words "Corporate
Seal" and "Maryland" and any emblem or device approved by the Board of
Directors. The seal may be used by causing it or a facsimile to be impressed or
affixed or in any other manner reproduced. In lieu of affixing the seal, it
shall be sufficient to meet the requirements of any law, rule or regulation
relating to a corporate seal to place the word "(seal)" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
<PAGE>
15
ARTICLE VIII
------------
AMENDMENTS
----------
These By-Laws may be amended by the Board of Directors, subject to the
requirements of the 1940 Act; provided, however, that no amendment of these By-
Laws shall affect any right of any person under Article VI hereof based on any
event, omission or proceeding prior to the amendment. These By-Laws may not be
amended by the stockholders of the Corporation.
<PAGE>
Exhibit 99.2d1
TEMPORARY CERTIFICATE - EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE WHEN
READY FOR DELIVERY
- --------------------------------------------------------------------------------
COMMON STOCK COMMON STOCK
[SEAL APPEARS HERE] [SEAL APPEARS HERE]
SALOMON BROTHERS HIGH INCOME FUND II INC
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
THIS CERTIFICATE IS TRANSFERABLE CUSIP
IN BOSTON, MASSACHUSETTS SEE REVERSE
OR IN NEW YORK, NEW YORK FOR CERTAIN DEFINITIONS
This Certifies that
in the registered holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
Salomon Brothers High Income Fund II Inc. transferable on the books of the
Corporation by the holder hereof in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed. This Certificate and the Shares
represented hereby are issued and should be subject to all of the provisions of
the Articles of Incorporation of the Corporation, and the Bylaws of the
Corporation, and all amendments thereof, copies of which are on file at the
principal office of the Corporation and with the Transfer Agent. This
Certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
<TABLE>
<S> <C>
Dated: Salomon Brothers High Income Fund II Inc.
COUNTERSIGNED AND REGISTERED:
FIRST DATA INVESTOR SERVICES GROUP, INC.
a Subsidiary of First Data Corporation TRANSFER AGENT
(BOSTON, MASSACHUSETTS) AND REGISTRAR
BY (Seal and Sigs. to Come)
AUTHORIZED SIGNATURE SECRETARY PRESIDENT
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- ------------------------------------------------------ --------------------------------------------------------
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR: MIKE ZEGLINSKI: 215-830-2197
680 BLAIR MILL ROAD PROOF OF APRIL 15, 1998
HORSHAM, PA 19044 SALOMON BROTHERS
(215) 657-3480 H 56260
- ------------------------------------------------------ --------------------------------------------------------
SALES: D. WETZLER: 212-557-9100 OPERATOR: EG/MT
- ------------------------------------------------------ --------------------------------------------------------
/NET/BANKNOTE/HOME46/SALOMON/H56260 NEW
- ------------------------------------------------------ --------------------------------------------------------
</TABLE>
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Keep this certificate in a safe place. If it is lost, stolen, or destroyed,
the Corporation will require a bond of indemnity as a condition to the issuance
of a replacement certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT- _____Custodian______
TEN ENT - as tenants by the (Cust) (Minor)
entirelies under Uniform Gifts to Minors
JT TEN - as joint tenants with Act_______________
right of survivorship and (State)
not as tenants in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,___________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------
- -----------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do herby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________________
X ______________________________________
X ______________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR.
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATSOEVER
Signature(S) Guaranteed
By__________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS STOCKBROKER SAVING
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM). PURSUANT TO SCHEDULE 17 AND 15
- -------------------------------------- ----------------------------------------
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR, MIKE ZEGLINSKLI:
215-830-2197
680 BLAIR MILL ROAD PROOF OF APRIL 15,1998
HORSHAM, PA 19044 SALOMON BROTHERS
(215) 657-3480 H 56260bk
- ---------------------------------------- ------------------------------------
SALES: D. WETZLER: 212-557-9100 OPERATOR: 09
- ---------------------------------------- ------------------------------------
/NET/BANKNOTE/HOME 46/SALOMON/H56260 NEW
- ---------------------------------------- ------------------------------------
<PAGE>
EXHIBIT 99.2e
TERMS AND CONDITIONS OF DIVIDEND REINVESTMENT
PLAN
1. Each shareholder purchasing shares of common stock ("Shares") of Salomon
Brothers High Income Fund II Inc (the "Fund") will be deemed to have elected to
be a participant in the Dividend Reinvestment Plan (the "Plan"), unless the
shareholder specifically elects in writing (addressed to the Agent at the
address below or to any nominee who holds Shares for the shareholder in its
name) to receive all income dividends and distributions of capital gains in
cash, paid by check, mailed directly to the record holder by or under the
direction of First Data Investor Services Group, Inc. as the Fund's dividend-
paying agent (the "Agent"). A shareholder whose Shares are held in the name of a
broker or nominee who does not provide an automatic reinvestment service may be
required to take such Shares out of "street name" and register such Shares in
the shareholder's name in order to participate, otherwise dividends and
distributions will be paid in cash to such shareholder by the broker or nominee.
Each participant in the Plan is referred to herein as a "Participant." The Agent
will act as Agent for each Participant, and will open accounts for each
Participant under the Plan in the same name as their Shares are registered.
2. Unless the Fund declares a dividend or distribution payable only in the form
of cash, the Agent will apply all dividends and distributions in the manner set
forth below.
3. If, on the determination date, the market price per Share equals or exceeds
the net asset value per Share on that date (such condition, a "market premium"),
the Agent will receive the dividend or distribution in newly issued Shares of
the Fund on behalf of Participants. If, on the determination date, the net asset
value per Share exceeds the market price per Share (such condition, a "market
discount"), the Agent will purchase Shares in the open market. The determination
date will be the fourth New York Stock Exchange trading day (a New York Stock
Exchange trading day being referred to herein as a "Trading Day") preceding the
payment date for the dividend or distribution. For purposes herein, "market
price" will mean the average of the highest and lowest prices at which the
Shares sell on the New York Stock Exchange on the particular date, or if there
is no sale on that date, the average of the closing bid and asked quotations.
4. Purchases made by the Agent will be made as soon as practicable commencing on
the Trading Day following the determination date and terminating no later than
30 days after the dividend or distribution payment date except where temporary
curtailment or suspension of purchase is necessary to comply with applicable
provisions of federal securities law; provided, however, that such purchases
will, in any event, terminate on the Trading Day prior to the "ex-dividend" date
next succeeding the dividend or distribution payment date.
5. If (i) the Agent has not invested the full dividend amount in open market
purchases by the date specified in paragraph 4 above as the date on which such
purchases must terminate or (ii) a market discount shifts to a market premium
during the purchase period, then the Agent will cease making open market
purchases and will receive the uninvested portion of the dividend amount in
newly issued Shares (x) in the case of (i) above, at the close of business
<PAGE>
on the date the agent is required to terminate making open market purchases as
specified in paragraph 4 above or (y) in the case of (ii) above, at the close of
business on the date such shift occurs; but in no event prior to the payment
date for the dividend or distribution.
6. In the event that all or part of a dividend or distribution amount is to be
paid in newly issued Shares, such Shares will be issued to Participants in
accordance with the following formula: (i) if, on the valuation date, the net
asset value per share is less than or equal to the market price per Share, then
the newly issued Shares will be valued at net asset value per Share on the
valuation date; provided, however, that if the net asset value is less than 95%
of the market price on the valuation date, then such Shares will be issued at
95% of the market price and (ii) if, on the valuation date, the net asset value
per share is greater than the market price per Share, then the newly issued
Shares will be issued at the market price on the valuation date. The valuation
date will be the dividend or distribution payment date, except that with respect
to Shares issued pursuant to paragraph 5 above, the valuation date will be the
date such Shares are issued. If a date that would otherwise be a valuation date
is not a Trading Day, the valuation date will be the next preceding Trading Day.
7. The open market purchases provided for above may be made on any securities
exchange on which the Shares of the Fund are traded, in the over-the-counter
market or in negotiated transactions, and may be on such terms as to price,
delivery and otherwise as the Agent shall determine. Funds held by the Agent
uninvested will not bear interest, and it is understood that, in any event, the
Agent shall have no liability in connection with any inability to purchase
Shares within the time periods herein provided, or with the timing of any
purchases effected. The Agent shall have no responsibility as to the value of
the Shares acquired for the Participant's account. The Agent may commingle
amounts of all Participants to be used for open market purchases of Shares and
the price per Share allocable to each Participant in connection with such
purchases shall be the average price (including brokerage commissions) of all
Shares purchased by the Agent.
8. The Agent will maintain all Participant accounts in the Plan and will furnish
written confirmations of all transactions in each account, including information
needed by Participants for personal and tax records. The Agent will hold Shares
acquired pursuant to the Plan in noncertificated form in the Participant's name
or that of its nominee, and each Participant's proxy will include those Shares
purchased pursuant to the Plan. The Agent will forward to Participants any proxy
solicitation material and will vote any Shares so held for Participants only in
accordance with the proxy returned by Participants to the Fund. Upon written
<PAGE>
request, the Agent will deliver to Participants, without charge, a certificate
or certificates for the full Shares.
9. The Agent will confirm to Participants each acquisition made for their
respective accounts as soon as practicable but not later than 60 days after the
date thereof. Although Participants may from time to time have an undivided
fractional interest (computed to three decimal places) in a Share of the Fund,
no certificates for fractional shares will be issued. Dividends and
distributions on fractional shares will be credited to each Participant's
account. In the event of termination of a Participant's account under the Plan,
the Agent will adjust for any such undivided fractional interest in cash at the
market value of the Fund's Shares at the time of termination less the pro rata
expense of any sale required to make such an adjustment.
10. Any share dividends or split shares distributed by the Fund on Shares held
by the Agent for Participants will be credited to their respective accounts. In
the event that the Fund makes available to Participants rights to purchase
additional Shares or other securities, the Shares held for Participants under
the Plan will be added to other Shares held by the Participants in calculating
the number of rights to be issued to Participants.
11. The Agent's service fee for handling capital gains distributions or income
dividends will be paid by the Fund. Participants will be charged a pro rata
share of brokerage commissions on all open market purchases.
12. Participants may terminate their accounts under the Plan by notifying the
Agent in writing. Such termination will be effective immediately if notice is
received by the Agent not less than ten days prior to any dividend or
distribution record date; otherwise such termination will be effective on the
first Trading Day after the payment date for such dividend or distribution with
respect to any subsequent dividend or distribution. The Plan may be amended or
terminated by the Fund as applied to any dividend or capital gains distribution
paid subsequent to written notice of the change or termination sent to
Participants at least 30 days prior to the record date for the dividend or
capital gains distribution. The Plan may be amended or terminated by the Agent,
with the Fund's prior written consent, on at least 30 days' written notice to
Plan Participants. Notwithstanding the preceding two sentences, the Agent or the
Fund may amend or supplement the Plan at any time or times when necessary or
appropriate to comply with applicable law or rules or policies of the Securities
and Exchange Commission or any other regulatory authority. Upon any termination,
the Agent will cause a certificate or certificates for the full Shares held by
each Participant under the Plan and cash adjustment for any fraction to be
delivered to each Participant without charge. If the Participant elects by
notice to the Agent in writing in advance of such termination to have the Agent
sell part or all of a Participant's Shares and remit the proceeds to
Participant, the Agent is authorized to deduct a $2.50 fee plus brokerage
commission for this transaction from the proceeds.
13. Any amendment or supplement shall be deemed to be accepted by each
Participant unless, prior to the effective date thereof, the Agent receives
written notice of the termination of the Participant's account under the Plan.
Any such amendment may include an appointment by the Agent in its place and
stead of a successor Agent under these terms and
<PAGE>
conditions, with full power and authority to perform all or any of the acts to
be performed by the Agent under these terms and conditions. Upon any such
appointment of an Agent for the purpose of receiving dividends and
distributions, the Fund will be authorized to pay to such successor Agent, for
each Participant's account, all dividends and distributions payable on Shares of
the Fund held in each Participant's name or under the Plan for retention or
application by such successor Agent as provided in these terms and conditions.
14. In the case of Participants, such as banks, broker-dealers or other
nominees, which hold Shares for others who are beneficial owners ("Nominee
Holders"), the Agent will administer the Plan on the basis of the number of
Shares certified from time to time by each Nominee Holder as representing the
total amount registered in the Nominee Holder's name and held for the account of
beneficial owners who are to participate in the Plan.
15. The Agent shall at all times act in good faith and use its best efforts
within reasonable limits to insure the accuracy of all services performed under
this Agreement and to comply with applicable law, but assumes no responsibility
and shall not be liable for loss or damage due to errors unless such error is
caused by its negligence, bad faith, or willful misconduct or that of its
employees.
16. All correspondence concerning the Plan should be directed to the Agent at
P.O. Box 5127, Westborough, Massachusetts 01581-5127.
<PAGE>
EXHIBIT 99.2g
SALOMON BROTHERS HIGH INCOME FUND II INC
INVESTMENT MANAGEMENT AGREEMENT
May __, 1998
Salomon Brothers Asset Management Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
This will confirm the agreement between the undersigned (the "Fund")
and you (the "Investment Manager") as follows:
1. The Fund is a closed-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund proposes to engage in the business of investing and
reinvesting its assets in the manner and in accordance with the investment
objectives and limitations specified in the Fund's Articles of Incorporation, as
amended from time to time (the "Articles"), in the Registration Statement on
Form N-2, as in effect from time to time (the "Registration Statement"), filed
with the Securities and Exchange Commission (the "SEC") by the Fund under the
1940 Act and the Securities Act of 1933, as amended, and in such manner and to
such extent as may from time to time be authorized by the Board of Directors of
the Fund. Copies of the documents referred to in the preceding sentence have
been furnished to the Investment Manager. Any amendments to these documents
shall be furnished to the Investment Manager.
2. The Fund employs the Investment Manager to (a) make investment
strategy decisions for the Fund, (b) manage the investing and reinvesting of the
Fund's assets as specified in paragraph 1, (c) place purchase and sale orders on
behalf of the Fund, (d) provide continuous supervision of the Fund's investment
portfolio, (e) provide or procure the provision of research and statistical data
in relation to investing and other matters within the scope of the investment
objectives and limitations of the Fund, and (f) provide the following services
for the Fund: (A) compliance with the rules and regulations of the SEC,
including record keeping, reporting requirements and preparation of registration
statements and proxies to the extent such records, reports and documents are not
maintained or furnished by the Fund's transfer agent, custodian, administrator
or other agents employed by the Fund;
<PAGE>
2
(B) supervision of Fund operations, including coordination of functions of the
transfer agent, custodian, accountants, counsel and other parties performing
services or operational functions for the Fund, (C) administrative and clerical
services, including accounting services, development of new shareholder services
and maintenance of books and records to the extent such services are not
otherwise provided by the Fund's transfer agent, custodian, administrator or
other agents employed by the Fund; and (D) services to Fund shareholders,
including responding to shareholder inquiries and maintaining a flow of
information to shareholders. The Investment Manager shall have the sole
ultimate discretion over investment decisions for the Fund. At the Investment
Manager's own expense and subject to its supervision, the Investment Manager may
delegate the performance of all or a part of its services under this agreement
to others.
3. (a) The Investment Manager shall, at its expense, (i) provide
the Fund with office space, office facilities and personnel reasonably necessary
for performance of the services to be provided by the Investment Manager
pursuant to this agreement, and (ii) provide the Fund with persons satisfactory
to the Fund's Board of Directors to serve as officers and employees of the Fund.
(b) Except as provided in subparagraph (a), the Fund shall be
responsible for all of the Fund's expenses and liabilities, including
organizational and offering expenses (which include out-of-pocket expenses, but
not overhead or employee costs of the Investment Manager); expenses for legal,
accounting and auditing services; taxes and governmental fees; dues and expenses
incurred in connection with membership in investment company organizations; fees
and expenses incurred in connection with listing the Fund's shares on any stock
exchange; costs of printing and distributing shareholder reports, proxy
materials, prospectuses, stock certificates and distribution of dividends;
charges of the Fund's custodians, sub-custodians, administrators and sub-
administrators, registrars, transfer agents, dividend disbursing agents and
dividend reinvestment plan agents; payment for portfolio pricing services to a
pricing agent, if any; fees of the SEC; expenses of registering or qualifying
securities of the Fund for sale; freight and other charges in connection with
the shipment of the Fund's portfolio securities; fees and expenses of non-
interested directors; travel expenses or an appropriate portion thereof of
directors and officers of the Fund who are directors, officers or employees of
the Investment Manager to the extent that such expenses relate to attendance at
meetings of the Board of Directors or any committee thereof; salaries of
shareholder relations personnel; costs of shareholders meetings; insurance;
interest; brokerage costs; litigation and other extraordinary or non-recurring
expenses.
4. As manager of the Fund's assets, the Investment Manager shall
make investments for the Fund's account in accordance with the investment
objectives and limitations set forth in the Articles, the Registration
Statement, the 1940 Act, the provisions of the Internal Revenue Code of 1986, as
amended relating to regulated investment companies, and policy decisions adopted
by the Fund's Board of Directors from time to time. The Investment Manager
shall advise the Fund's officers and Board of Directors, at such times as the
Fund's Board of Directors may specify, of investments made for the Fund's
account and shall, when requested by the Fund's officers or Board of Directors,
supply the reasons for making such investments.
<PAGE>
3
5. The Investment Manager may contract with or consult with such
banks, other securities firms, brokers or other parties, without additional
expense to the Fund, as it may deem appropriate regarding investment advice,
research and statistical data, clerical assistance, accounting services or
otherwise.
6. The Investment Manager is authorized on behalf of the Fund, from
time to time when deemed to be in the best interests of the Fund and to the
extent permitted by applicable law, to purchase and/or sell securities in which
the Investment Manager or any of its affiliates underwrites, deals in and/or
makes a market and/or may perform or seek to perform investment banking services
for issuers of such securities. The Investment Manager is further authorized,
to the extent permitted by applicable law, to select brokers for the execution
of trades for the Fund, which broker may be an affiliate of the Investment
Manager, provided that the affiliated broker's charge for the transaction is
reasonable and fair compared to the usual and customary levels charged by other
brokers in connection with comparable transactions involving similar securities.
7. The Investment Manager is authorized, for the purchase and sale
of the Fund's portfolio securities, to employ such dealers and brokers as may,
in the judgment of the Investment Manager, implement the policy of the Fund to
obtain the best net results taking into account such factors as price, including
dealer spread, the size, type and difficulty of the transaction involved, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. Consistent with this policy, the
Investment Manager is authorized to direct the execution of the Fund's portfolio
transactions to dealers and brokers furnishing statistical information or
research deemed by the Investment Manager to be useful or valuable to the
performance of its investment advisory functions for the Fund. Information so
received will be in addition to and not in lieu of the services required to be
performed by the Investment Manager. It is understood that the expenses of the
Investment Manager will not necessarily be reduced as a result of the receipt of
such information or research.
8. In consideration of the services to be rendered by the Investment
Manager under this agreement, the Fund shall pay the Investment Manager a
monthly fee in United States dollars on the first business day of each month for
the previous month at an annual rate of 1.00% of the value of the Fund's average
weekly net assets plus the proceeds of any outstanding borrowings used for
leverage ("average weekly net assets" means the average weekly value of the
total assets of the Fund, including the amount obtained from leverage and any
proceeds from the issuance of preferred stock, minus the sum of (i) accrued
liabilities of the Fund, (ii) any accrued and unpaid interest on outstanding
borrowings and (iii) accumulated dividends on shares of preferred stock),
commencing on the date of the first receipt by the Fund of the proceeds of the
sale of shares to the Underwriters as described in the Registration Statement.
For purposes of this calculation, average weekly net assets is determined at the
end of each month on the basis of the average net assets of the Fund for each
week during the month. The assets for each weekly period are determined by
averaging the net assets at the last business day of a week with the net assets
at the last business day of the prior week. If the fee payable to the
Investment Manager pursuant to this paragraph 8 begins to accrue before the end
of any month or if this agreement terminates before the end of any month, the
fee for the period from such date to the end of such month or from the
<PAGE>
4
beginning of such month to the date of termination, as the case may be, shall be
prorated according to the proportion which such period bears to the full month
in which such effectiveness or termination occurs.
9. In consideration of the Investment Manager's undertaking to
render the services described in this agreement, the Fund agrees that the
Investment Manager shall not be liable under this agreement for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of this agreement, provided that nothing in this agreement
shall be deemed to protect or purport to protect the Investment Manager against
any liability to the Fund or its stockholders to which the Investment Manager
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties under this agreement or by reason of
its reckless disregard of its obligations and duties hereunder ("disabling
conduct"). The Fund will indemnify the Investment Manager against, and hold it
harmless from, any and all losses, claims, damages, liabilities or expenses,
including reasonable counsel fees and expenses and any amounts paid in
satisfaction of judgments, in compromise or as fines or penalties, not resulting
from disabling conduct by the Investment Manager. Indemnification shall be made
only following: (i) a final decision on the merits by a court or other body
before whom the proceeding was brought that the Investment Manager was not
liable by reason of disabling conduct, or (ii) in the absence of such a
decision, a reasonable determination, based upon a review of the facts, that the
Investment Manager was not liable by reason of 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
Investment Manager shall be entitled to advances from the Fund for payment of
the reasonable expenses incurred by it in connection with the matter as to which
it is seeking indemnification in the manner and to the fullest extent
permissible under law. The Investment Manager shall provide to the Fund a
written affirmation of its good faith belief that the standard of conduct
necessary for indemnification by the Fund has been met and a written undertaking
to repay any such advance if it should ultimately be determined that the
standard of conduct has not been met. In addition, at least one of the
following additional conditions shall be met: (a) the Investment Manager shall
provide security in form and amount acceptable to the Fund for its undertaking;
(b) the Fund is insured against losses arising by reason of the advance; or (c)
a majority of a quorum of 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 Investment Manager will
ultimately be found to be entitled to indemnification. For purposes of this
paragraph 9 only, the term "Investment Manager" shall be deemed to include
affiliates of the Investment Manager to whom the Investment Manager has
delegated the exercise of all or any of its powers, discretion and duties under
this agreement.
10. This agreement shall continue in effect until 2 years from the
date hereof and thereafter for successive annual periods, provided that such
continuance is specifically approved at least annually (a) by the vote of a
majority of the Fund's outstanding voting securities (as defined in the 1940
Act) or by the Fund's Board of Directors and (b) by the vote, cast in person at
a meeting called for the purpose, of a majority of the Fund's
<PAGE>
5
directors who are not parties to this agreement or "interested persons" (as
defined in the 1940 Act) of any such party. This agreement may be terminated at
any time, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the 1940 Act) or by a vote
of a majority of the Fund's entire Board of Directors on 60 days' written notice
to the Investment Manager or by the Investment Manager on 60 days' written
notice to the Fund. This agreement shall terminate automatically in the event
of its assignment (as defined in the 1940 Act). The respective agreements,
covenants, indemnities and other statements set forth in Section 9 hereof shall
remain in full force and effect regardless of any termination or cancellation of
this agreement. All property of the Fund shall be returned to the Fund as soon
as reasonably practicable after the termination of this agreement.
11. Upon expiration or earlier termination of this agreement, the
Fund shall, if reference to "Salomon Brothers" is made in the corporate name of
the Fund and if the Investment Manager requests in writing, as promptly as
practicable change its corporate name and the name of the Fund so as to
eliminate all reference to "Salomon Brothers", and thereafter the Fund shall
cease transacting business in any corporate name using the words "Salomon
Brothers" or any other reference to the Investment Manager or "Salomon
Brothers". The foregoing rights of the Investment Manager and obligations of
the Fund shall not deprive the Investment Manager, or any affiliate thereof
which has "Salomon Brothers" in its name, of, but shall be in addition to, any
other rights or remedies to which the Investment Manager and any such affiliate
may be entitled in law or equity by reason of any breach of this agreement by
the Fund, and the failure or omission of the Investment Manager to request a
change of the Fund's name or a cessation of the use of the name of "Salomon
Brothers" as described in this paragraph 11 shall not under any circumstances be
deemed a waiver of the right to require such change or cessation at any time
thereafter for the same or any subsequent breach.
12. Except to the extent necessary to perform the Investment
Manager's obligations under this agreement, nothing herein shall be deemed to
limit or restrict the right of the Investment Manager, or any affiliate of the
Investment Manager, or any employee of the Investment Manager, to engage in any
other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, firm, individual or
association. Nothing herein shall be construed as constituting the Investment
Manager an agent of the Fund.
13. This agreement shall be governed by the laws of the State of New
York.
<PAGE>
6
14. All notices hereunder shall be in writing and shall be delivered
in person or by telex or facsimile (followed by delivery in person to the
parties at the addresses set forth below).
If to the Fund:
Salomon Brothers High
Income Fund II Inc
c/o Salomon Brothers Asset
Management Inc
Seven World Trade Center
New York, New York 10048
Attention: President
If to the Investment Manager:
Salomon Brothers Asset
Management Inc
Seven World Trade Center
New York, New York 10048
Attention: President
or such other name or address as may be given in writing to the other party.
Unless specifically provided elsewhere, notice given as provided above
shall be deemed to have been given, if by personal delivery, on the day of such
delivery, and if by telex or facsimile and mail, on the date on which such telex
or facsimile is sent.
15. This agreement constitutes the entire agreement among the parties
hereto.
16. This agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
<PAGE>
7
If the foregoing correctly sets forth the agreement between the Fund
and the Investment Manager, please so indicate by signing and returning to the
Fund the enclosed copy hereof.
Very truly yours,
SALOMON BROTHERS HIGH INCOME
FUND II INC
By:
-------------------------
Name: Heath B. McLendon
Title: Chairman of the
Board and President
ACCEPTED:
SALOMON BROTHERS ASSET
MANAGEMENT INC
By:
---------------------------
Name: Michael S. Hyland
Title: President
<PAGE>
Exhibit 99.2h1
Salomon Brothers High Income Fund II Inc
[66,666] Shares/*/
Common Stock
($.001 par value)
Underwriting Agreement
New York, New York
May [ ], 1998
Salomon Smith Barney
[ ]
As Representatives of the several Underwriters
listed in Schedule I hereto
c/o Salomon Smith Barney
[388 Greenwich Street]
New York, New York [10013]
Ladies and Gentlemen:
Salomon Brothers High Income Fund II Inc, a Maryland corporation (the
"Company"), and Salomon Brothers Asset Management Inc (the "Investment Manager")
each confirms its agreement with you with respect to the sale by the Company to
the underwriters named in Schedule I hereto (the "Underwriters"), for whom you
(the "Representatives") are acting as representatives, [66,666] shares of Common
Stock, par value $.001 per share, of the Company ("Common Stock") (said shares
to be issued and sold by the Company being hereinafter called the "Underwritten
Securities"). The Company also proposes to grant to the Underwriters, upon the
terms and subject to the conditions set forth in Section 2(b) hereof, an option
to purchase up to [ ] additional shares of Common Stock (the "Option Securities"
and together with the Underwritten Securities, the "Securities").
__________________
/*/ Plus an option to purchase from Salomon Brothers High Income Fund II Inc up
to [ ] additional shares to cover over-allotments.
<PAGE>
1. Representations and Warranties. (a) Each of the Company and the
------------------------------
Investment Manager, jointly and severally, represents and warrants to, and
agrees with, each Underwriter as set forth below in this Section 1. Certain
terms used in this Section 1 are defined in Section 1(iii) hereof.
(i) The Company meets the requirements for use of Form N-2 under the
Securities Act of 1933 (the "Act") and the Investment Company Act of 1940
(the "Investment Company Act") and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the
"Commission") under each of the Act and the Investment Company Act; the
Company has filed with the Commission a registration statement (file number
[ ]) on such Form, including a related preliminary prospectus and a
notification of registration on Form N-8A under the Investment Company Act
(file number [ ]). The Company may have filed one or more amendments
thereto, including the related preliminary prospectus, each of which has
previously been furnished to you. The Company will next file with the
Commission one of the following: (A) prior to effectiveness of such
registration statement, a further amendment to such registration statement,
including the form of final prospectus or (B) after effectiveness of such
registration statement, a final prospectus in accordance with Rule 497(b)
or Rules 430A and 497(h), as the case may be. In the case of clause (B),
the Company has included in such registration statement, as amended at the
Effective Date, all information (other than Rule 430A Information) required
by the Act and the Investment Company Act and the Rules and Regulations to
be included in the Prospectus with respect to the Securities and the
offering thereof. As filed, such amendment and form of final prospectus, or
such final prospectus, shall contain all Rule 430A Information, together
with all other such required information, with respect to the Securities
and the offering thereof and, except to the extent the Representatives
shall agree in writing to a modification, shall be in all substantive
respects in the form furnished to you prior to the Execution Time or, to
the extent not completed at the Execution Time, shall contain only such
specific additional information and other
2
<PAGE>
changes (beyond that contained in the latest Preliminary Prospectus) as
the Company has advised you, prior to the Execution Time, will be included
or made therein.
(ii) On the Effective Date, the Registration Statement and the
notification of registration on Form N-8A did or will, and when the
Prospectus is first filed in accordance with Rule 497(b) or (h), as the
case may be, and if subsequently filed pursuant to Rule 497(d), and on the
Closing Date, the Prospectus (and any supplements thereto) will, comply in
all material respects with the applicable requirements of the Act and the
Investment Company Act and the Rules and Regulations; on the Effective
Date, the Registration Statement and the notification of registration on
Form N-8A did not or will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and, on
the Effective Date, the Prospectus, if not filed pursuant to Rule 497(b) or
(h), as the case may be, did not or will not, and on the date of any filing
pursuant to Rule 497(b) or (h), as the case may be, and on the date of any
filing pursuant to Rule 497(d), and on the Closing Date, the Prospectus
(together with any supplement thereto) will not, include any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the
-------- -------
Company makes no representations or warranties as to the information
contained in or omitted from the Registration Statement, the Prospectus (or
any supplement thereto) or the notification of registration on Form N-8A,
in reliance upon and in conformity with (A) information furnished in
writing to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion in the Registration Statement,
the Prospectus (or any supplement thereto) or the notification on Form N-8A
or (B) information relating to the Investment Manager and furnished to the
Company by the Investment Manager specifically for inclusion in the
Registration Statement, the Prospectus (or any supplement
3
<PAGE>
thereto) or the notification of registration on Form N-8A.
(iii) The terms which follow, when used in this Agreement, shall have
the meanings indicated. The term "Effective Date" shall mean each date that
the Registration Statement and any post-effective amendment or amendments
thereto became or become effective. "Execution Time" shall mean the date
and time that this Agreement is executed and delivered by the parties
hereto. "Preliminary Prospectus" shall mean any preliminary prospectus
referred to in Section 1(i) above and any preliminary prospectus included
in the Registration Statement at the Effective Date that omits Rule 430A
Information. "Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 497(b) or (h), as the case
may be, after the Execution Time, or as subsequently filed pursuant to Rule
497(d) under the Act or, if no filing pursuant to Rule 497 is required,
shall mean the form of final prospectus relating to the Securities included
in the Registration Statement at the Effective Date. "Registration
Statement" shall mean the registration statement referred to in Section
1(i) above, including incorporated documents, exhibits and financial
statements, as amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become effective) and, in the
event any post-effective amendment thereto becomes effective prior to the
Closing Date (as hereinafter defined), shall also mean such registration
statement as so amended and such term shall include any Rule 430A
Information deemed to be included therein at the Effective Date as provided
by Rule 430A. "Rule 430A" and "Rule 497" refer to such rules under the Act.
"Rule 430A Information" means information with respect to the Securities
and the offering thereof permitted to be omitted from the Registration
Statement when it becomes effective pursuant to Rule 430A.
(iv) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Maryland,
with full corporate power and authority to own its property and conduct its
business as described in
4
<PAGE>
the Prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction
which requires such qualification wherein it owns or leases material
properties or conducts material business; the Company has no subsidiaries;
and the Company holds all licenses, certificates and permits from all
governmental authorities necessary for the conduct of its business as
described in the Prospectus (other than the order of the Commission
declaring the Registration Statement effective under the Act and similar
orders under the securities or blue sky laws of the various states of the
United States).
(v) The Company has an authorized equity capitalization as set forth
in the Prospectus; the capital stock of the Company conforms to the
description thereof contained in the Prospectus; there are no shares of
Common Stock owned of record except [ ] shares of Common Stock owned of
record by [the Investment Manager]; the outstanding shares of Common Stock
of the Company have been duly and validly authorized and issued and are
fully paid and nonassessable; the Securities have been duly and validly
authorized and, when issued and delivered to and paid for by the
Underwriters pursuant to this Agreement, will be validly issued, fully paid
and nonassessable; the Securities have been duly authorized for listing,
subject to official notice of issuance, on the New York Stock Exchange; the
certificates representing the Securities are in valid and sufficient form;
and no holder of outstanding shares of capital stock of the Company is
entitled to preemptive or other rights to subscribe for the Securities.
(vi) There is not pending or, to the best knowledge of the Company,
threatened, any action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator involving the Company of a
character required to be disclosed in the Registration Statement by the
Act, the Investment Company Act or the Rules and Regulations which is not
adequately disclosed in the Prospectus, and there is no franchise,
contract, agreement or document of a character required to be described in
the Registration Statement or Prospectus by the Act,
5
<PAGE>
the Investment Company Act or the Rules and Regulations, or to be filed as
an exhibit, which is not described or filed as required.
(vii) Except as stated or contemplated in the Prospectus, subsequent
to the respective dates as of which information is given in the
Registration Statement and the Prospectus, (A) the Company has not incurred
any liabilities or obligations, direct or contingent, or entered into any
transactions, not in the ordinary course of business, that are material to
the Company and (B) the Company has not incurred any indebtedness for
borrowed money.
(viii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company
of the transactions contemplated herein, except such as may be required
under the Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Investment Company Act, the Rules and Regulations, the
rules and regulations of the Commission under the Exchange Act or state
securities or blue sky laws of any jurisdiction in connection with the
purchase and distribution of the Securities by the Underwriters.
(ix) The Investment Management Agreement (the "Management
Agreement") to be dated as of the Effective Date, between the Company and
the Investment Manager, the Custodian Agreement (the "Custodian Agreement")
to be dated as of the Effective Date, between the Company and [ ] (the
"Custodian"), and the Registrar, Transfer Agency and Service Agreement (the
"Transfer Agency Agreement") to be dated as of the Effective Date, between
the Company and [ ], (this Agreement, the Management Agreement, the
Custodian Agreement, and the Transfer Agency Agreement, collectively, the
"Company Agreements") have been duly authorized, executed and delivered by
the Company; the Management Agreement, the Custodian Agreement and the
Transfer Agency Agreement comply as to form with all applicable provisions
of the Act and each constitutes a legal, valid and binding instrument
enforceable against the Company in accordance with its terms (subject, as
to enforcement of remedies, to applicable bankruptcy,
6
<PAGE>
reorganization, insolvency, moratorium or other laws affecting creditors'
rights generally from time to time in effect).
(x) The Company is registered with the Commission under the
Investment Company Act as a closed-end diversified management investment
company and all required action has been taken under the Act and the
Investment Company Act to make the public offering and consummate the
sale of the Securities under this Agreement, and the provisions of the
Company's articles of incorporation and by-laws do not violate the
Investment Company Act or the Rules and Regulations of the Commission
thereunder.
(xi) The Company is not in violation of its articles of incorporation
or by-laws or of any law, ordinance, administrative or governmental rule or
regulation applicable to the Company or of any decree of the Commission,
the National Association of Securities Dealers, Inc. (the "NASD"), any
state securities commission, any national securities exchange, any
arbitrator, any court or any other governmental, regulatory, self-
regulatory or administrative agency or any official having jurisdiction
over the Company or in default in any material respect in the performance
of any obligation, agreement or condition contained in any bond, debenture,
note or any other evidence of indebtedness or in any material agreement,
indenture, lease or other instrument to which the Company is a party or by
which it or any of its properties may be bound.
(xii) Neither (A) the operations and activities of the Company as
contemplated in the Prospectus, (B) the performance by the Company of the
Company Agreements, nor (C) the consummation of the transactions
contemplated herein or in the Prospectus will conflict with, or result in a
breach of or violation of any of the terms and provisions of, or constitute
a default under, any statute, any agreement or instrument to which the
Company is a party or by which it is bound or to which any of the property
of the Company is subject, the Company's articles of incorporation or by-
laws, or any order, rule or regulation of any court or governmental agency,
authority or body having jurisdiction over
7
<PAGE>
the Company or any of its properties; and no consent, approval,
authorization or order of, or filing with, any court or governmental
agency, authority or body is required for the consummation of the
transactions contemplated by the Company Agreements in connection with the
issuance or sale of the Securities by the Company, except such as may be
required under the Act, the Exchange Act, the Investment Company Act or
state securities laws or blue sky.
(xiii) Since the date as of which information is given in the
Registration Statement and the Prospectus (and any amendment or supplement
to either of them), except as otherwise stated therein, (A) there has been
no material, adverse change in the condition (financial or other),
business, properties, net assets or results of operations of the Company or
business prospects of the Company, whether or not arising in the ordinary
course of business and (B) there has been no dividend or distribution of
any kind declared, paid or made by the Company on any class of its capital
stock.
(xiv) The accountants, [ ] who have certified or shall
certify the financial statements included in the Registration Statement
and the Prospectus (and any amendment or supplement to either of them),
are an independent public accounting firm as required by the Act, the
Investment Company Act and the Rules and Regulations.
(xv) The financial statements, together with related schedules and
notes, included in the Registration Statement or the Prospectus (or any
amendment or supplement to either of them) present fairly the financial
position of the Company on the basis stated in the Registration Statement
at the respective dates or for the respective periods to which they apply;
such financial statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except as disclosed
therein; and the other financial and statistical information and data
included in the Registration Statement or the Prospectus (or any amendment
or supplement thereto) are accurately presented and prepared on a basis
consistent with
8
<PAGE>
such financial statements and the books and records of the Company.
(xvi) The Company has not distributed and, prior to the later to
occur of (A) the Closing Date and (B) completion of the distribution of the
Securities, will not distribute to the public any offering material in
connection with the offering and sale of the Securities other than the
Registration Statement, the prospectus included in Pre-Effective Amendment
No. [ ] to the Registration Statement, the Prospectus and the [ ]
filed by the Company with the NASD on [ ], 1998.
(xvii) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific authorization
and with the investment policies and restrictions of the Company and the
applicable requirements of the Investment Company Act, the Investment
Company Act Rules and Regulations and the Internal Revenue Code of 1986,
as amended; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles, to calculate net asset value, to maintain
accountability for assets and to maintain material compliance with the
books and records requirements under the Investment Company Act and the
Investment Company Act Rules and Regulations; (C) access to assets is
permitted only in accordance with management's general or specific
authorization; and (D) the recorded account for assets is compared with
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xviii) The conduct by the Company of its business (as described in
the Prospectus) does not require it to be the owner, possessor or licensee
of any patents, patent licenses, trademarks, service marks or trade names
which it does not own, possess or license.
(xix) Except as stated in this Agreement and in the Prospectus (and
any amendment or supplement
9
<PAGE>
thereto), the Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in or which will constitute stabilization or manipulation
of the price of shares of Common Stock and the Company is not aware of any
such action taken or to be taken by any affiliates of the Company.
(xx) All advertising, sales literature or other promotional material
(including "prospectus wrappers," "broker kits," "road show slides" and
"road show scripts") authorized by or prepared by or on behalf of the
Company or the Investment Manager for use in connection with the offering
and sale of the Securities (collectively, "sales material") complied and
comply in all material respects with the applicable requirements of the
Act, the Act Rules and Regulations and the rules and interpretations of
the NASD and no such sales material contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(xxi) No holder of any security of the Company has any right to
require registration of shares of Common Stock or any other security of the
Company because of the filing of the Registration Statement or consummation
of the transactions contemplated by this Agreement.
(b) The Investment Manager represents and warrants to, and agrees
with, each Underwriter that:
(i) The Investment Manager is duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with full corporate power and authority to own its property and
conduct its business as described in the Prospectus, and is duly qualified
to do business as a foreign corporation and is in good standing under the
laws of each jurisdiction which requires such qualification wherein it owns
or leases material properties or conducts material business.
10
<PAGE>
(ii) The Investment Manager is duly registered as an investment
adviser under the Investment Advisers Act of 1940, as amended (the
"Advisers Act") and is not prohibited by the Advisers Act or the Investment
Company Act, or the rules and regulations under such Acts, from acting as
investment adviser for the Company under the Management Agreement and as
contemplated by the Prospectus.
(iii) This Agreement and the Management Agreement (collectively, the
"Investment Manager Agreements"), have been duly authorized, executed and
delivered by the Investment Manager; the Management Agreement complies as
to form with all applicable provisions of the Act and the Investment
Company Act and constitutes a legal, valid and binding instrument
enforceable against the Investment Manager in accordance with its terms
(subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting creditors'
rights generally from time to time in effect).
(iv) neither (A) the operations and activities of the Investment
Manager as contemplated in the Prospectus, (B) the performance by the
Investment Manager of the Investment Manager Agreements, nor (C) the
consummation of the transactions contemplated herein or in the Prospectus
will conflict with, or result in a breach of or violation of any of the
terms and provisions of, or constitute a default under, any statute, any
agreement or instrument to which the Investment Manager is a party or by
which it is bound or to which any of the property of the Investment Manager
is subject, the Investment Manager's certificate of incorporation or by-
laws, or any order, rule or regulation of any court or governmental agency,
authority or body having jurisdiction over the Investment Manager or any of
its properties; and no consent, approval, authorization or order of, or
filing with, any court or governmental agency, authority or body is
required for the consummation of the transactions contemplated by the
Investment Manager Agreements in connection with the issuance or sale of
the Securities by the Company, except such as may be required under the
Act, the
11
<PAGE>
Exchange Act, the Investment Company Act or state securities laws or blue
sky.
(v) On the Effective Date, the Registration Statement did not or will
not contain any untrue statement of a material fact relating to the
Investment Manager or the Investment Manager Agreements or omit to state a
material fact relating to the Investment Manager or the Investment
Manager Agreements required to be stated therein or necessary to make the
statements therein not misleading; and on the Effective Date, the
Prospectus, if not filed pursuant to Rule 497(b) or (h), as the case may
be, did not or will not, and on the date of any filing pursuant to rule
497(b) or (h), as the case may be, and on the date of any filing pursuant
to Rule 497(d), and on the Closing Date, the Prospectus (together with any
supplements thereto) will not, include any untrue statement of a material
fact relating to the Investment Manager or the Investment Manager
Agreements or omit to state a material fact relating to the Investment
Manager or the Investment Manager Agreements necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(vi) There has not been any material change in the management of the
Investment Manager or any material adverse change in the condition
(financial or other) of the Investment Manager since the date of the
Prospectus (or, if the Prospectus is not in existence, the Preliminary
Prospectus).
(vii) There is not pending, or to the best knowledge of the Investment
Manager, threatened, any action, suit, proceeding, inquiry or investigation
before or brought by any court or governmental agency, authority or body or
any arbitration involving the Investment Manager (A) relating to any of
the transactions contemplated by the Investment Manager Agreements or (B)
which might, individually or in the aggregate, result in any material
adverse change in the condition (financial or other), business,
prospectus or net worth of the Investment Manager, or might materially and
adversely affect the properties or assets thereof.
12
<PAGE>
(viii) Except as stated in this Agreement and in the Prospectus (and
in any amendment or supplement thereto), the Investment Manager has not
taken and will not take, directly or indirectly, any action designed to or
which might reasonably be expected to cause or result in or which will
constitute, stabilization or manipulation of the price of shares of Common
Stock and the Investment Manager is not aware of any such action taken or
to be taken by any affiliates of the Investment Manager.
2. Purchase and Sale. (a) Subject to the terms and conditions and in
-----------------
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Company, at a purchase price of $15.00 per
share, the amount of the Underwritten Securities set forth opposite such
Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the several Underwriters to purchase, severally and not jointly, up to
[ ] shares of Option Securities at the same purchase price per share as
the Underwriters shall pay for the Underwritten Securities. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or from
time to time in part at any time on or before the 60th day after the date of the
Prospectus upon written or telegraphic notice by the Representatives to the
Company setting forth the number of shares of the Option Securities as to which
the several Underwriters are exercising the option and the settlement date.
Delivery of certificates for the shares of Option Securities, and payment
therefor, shall be made as provided in Section 3 hereof. The number of shares
of the Option Securities to be purchased by each Underwriter shall be the same
percentage of the total number of shares of the Option Securities to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Securities, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional shares.
13
<PAGE>
3. Delivery and Payment. Delivery of and payment for the
--------------------
Underwritten Securities and the Option Securities (if the option provided for in
Section 2(b) hereof shall have been exercised on or before the third business
day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
May [ ], 1998, or such later date (not later than May [ ], 1998) as the
Representatives shall designate, which date and time may be postponed by
agreement between the Representatives and the Company or as provided in Section
9 hereof (such date and time of delivery and payment for the Securities being
herein called the "Closing Date"). Delivery of the Securities shall be made to
the Representatives for the respective accounts of the several Underwriters
against payment by the several Underwriters through the Representatives of the
purchase price thereof to or upon the order of the Company by certified or
official bank check or checks drawn on or by a New York Clearing House bank and
payable in next day funds. Delivery of the Underwritten Securities and the
Option Securities shall be made at such location as the Representatives shall
reasonably designate at least one business day in advance of the Closing Date
and payment for such Securities shall be made at the office of Skadden, Arps,
Slate, Meagher & Flom LLP in New York, New York. Certificates for the
Securities shall be registered in such names and in such denominations as the
Representatives may request not less than three full business days in advance of
the Closing Date.
The Company agrees to have the Securities available for inspection,
checking and packaging by the Representatives in New York, New York, not later
than 1:00 PM on the business day prior to the Closing Date.
If the option provided for in Section 2(b) hereof is exercised after
the third business day prior to the Closing Date, the Company will deliver (at
the expense of the Company) to the Representatives, at [388 Greenwich Street],
New York, New York, on the date specified by the Representatives (which shall
in no event be earlier than three business days nor later than ten business days
after exercise of said option), certificates for the Option Securities in such
names and denominations as the Representatives shall have requested against
payment of the purchase price thereof to or upon the order of the Company by
certified or official bank
14
<PAGE>
check or checks drawn on or by a New York Clearing House bank and payable in
next day funds. If settlement for the Option Securities occurs after the Closing
Date, the Company will deliver to the Representatives on the settlement date for
the Option Securities, and the obligation of the Underwriters to purchase the
Option Securities shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
------------------------
Underwriters propose to offer the Securities for sale to the public as set
forth in the Prospectus.
5. Agreements. The Company agrees with the several Underwriters
----------
that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment thereof, to
become effective. Prior to the termination of the offering of the Securities,
the Company will not file any amendment of the Registration Statement or
supplement (whether pursuant to the Act, the Investment Company Act, or
otherwise) to the Prospectus unless the Company has furnished you a copy for
your review prior to filing and will not file any such proposed amendment or
supplement to which you reasonably object. Subject to the foregoing sentence,
if the Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required under Rule 497, the
Company will cause the Prospectus, properly completed, and any supplement
thereto to be filed with the Commission pursuant to the applicable paragraph
of Rule 497 within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. The Company will
promptly advise the Representatives (i) when the Registration Statement, if
not effective at the Execution Time, and any amendment thereto, shall have
become effective, (ii) when the Prospectus, and any supplement thereto, shall
have been filed (if required) with the Commission pursuant to Rule 497, (iii)
when, prior to termination of the offering of the Securities, any amendment to
the Registration Statement shall have been filed or become effective, (iv) of
any request
15
<PAGE>
by the Commission for any amendment of the Registration Statement or supplement
to the Prospectus or for any additional information, (v) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement under the Act or the issuance of any notice or order under Section
8(e) of the Investment Company Act or the institution or threatening of any
proceeding for either such purpose and (vi) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Company will use its best efforts to prevent
the issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which they were made
not misleading, or if it shall be necessary to amend the Registration
Statement or supplement the Prospectus to comply with the Act, the Investment
Company Act or the Rules and Regulations, the Company promptly will prepare and
file with the Commission, subject to the second sentence of paragraph (a) of
this Section 5, an amendment or supplement which will correct such statement
or omission or effect such compliance.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the Representatives an earnings statement or
statements of the Company and its subsidiaries which will satisfy the provisions
of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and counsel for
the Underwriters, without charge, signed copies of the Registration Statement
(including exhibits thereto) and to each other Underwriter a copy of the
Registration Statement (without exhibits thereto) and, so long as delivery of a
prospectus by an Underwriter or dealer may be required by the Act, as many
copies of each Preliminary Prospectus and the Prospectus
16
<PAGE>
and any supplement thereto as the Representatives may reasonably request.
(e) The Company will arrange for the qualification of the Securities
for sale under the laws of such jurisdictions as the Representatives may
designate, will maintain such qualifications in effect so long as required for
the distribution of the Securities and will pay the fee of the National
Association of Securities Dealers, Inc., in connection with its review of the
offering.
(f) The Company will not, for a period of 180 days following the date
of the Prospectus, without the prior written consent of the Representatives,
offer, sell or contract to sell, register with the Commission or otherwise
dispose of, directly or indirectly, or announce the offering of, any shares of
Common Stock other than the Securities or any securities convertible into, or
exchangeable for, shares of Common Stock; provided, however, that the Company
-------- -------
may issue and sell Common Stock pursuant to any dividend reinvestment plan of
the Company in effect at the Execution Time.
(g) The Company will apply the net proceeds from the sale of the
Underwritten Securities, and of the Option Securities, if any, for the purposes
set forth in the Prospectus.
(h) The Company will use its best efforts to list, subject to notice
of issuance, the Securities to be sold by it on the New York Stock Exchange
simultaneously with the effectiveness of the Registration Statement.
6. Conditions to the Obligations of the Underwriters. The
-------------------------------------------------
obligations of the Underwriters to purchase the Underwritten Securities and the
Option Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Investment
Manager contained herein as of the Execution Time, the Closing Date and any
settlement date pursuant to Section 3 hereof, to the accuracy of the statements
of the Company and the Investment Manager made in any certificates pursuant to
the provisions hereof, to the performance by the Company and the Investment
Manager of their respective obligations hereunder and to the following
additional conditions:
17
<PAGE>
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Representatives agree in writing to a later time,
the Registration Statement will become effective not later than (i) 6:00 PM New
York City time, on the date of determination of the public offering price, if
such determination occurred at or prior to 3:00 PM New York City time on such
date or (ii) 12:00 Noon on the business day following the day on which the
public offering price was determined, if such determination occurred after 3:00
PM New York City time on such date; if filing of the Prospectus, or any
supplement thereto, is required pursuant to Rule 497(b), (d) or (h), the
Prospectus, and any such supplement, will be filed in the manner and within the
time period required by Rule 497(b), (d) or (h), as the case may be; and no stop
order suspending the effectiveness of the Registration Statement under the Act
and no notice or order under Section 8(e) of the Investment Company Act shall
have been issued and no proceedings for either purpose shall have been
instituted or threatened.
(b) The Company shall have furnished to the Representatives the
opinion of Simpson Thacher & Bartlett, counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Maryland,
with full corporate power and authority to own its prop erties and conduct
its business as described in the Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the laws of
each jurisdiction which requires such qualification wherein it owns or
leases material properties or conducts material business; the Company has
no subsidiaries; and the Company holds all licenses, certificates and
permits from all governmental authorities necessary for the conduct of its
business as described in the Prospectus;
(ii) the Company's authorized equity capitalization is as set forth
in the Prospectus; the capital stock of the Company conforms to the
description thereof contained in the Prospectus under the caption
"Description of Capital Stock - Common
18
<PAGE>
Stock"; there are no shares of Common Stock owned of record except
[ ] shares of Common Stock owned of record by [the Investment
Manager]; the outstanding shares of Common Stock have been duly and validly
authorized and issued and are fully paid and nonassessable; the Securities
have been duly and validly authorized by all necessary corporate action by
the Company and, when issued and delivered to and paid for by the
Underwriters pursuant to this Agreement, will be validly issued, fully paid
and nonassessable; the Securities have been authorized for listing, subject
to official notice of issuance and evidence of satisfactory distribution,
on the New York Stock Exchange; the certificates representing the
Securities are in valid and sufficient form; and no holder of outstanding
shares of capital stock of the Company is entitled to preemptive or other
rights to subscribe for the Securities;
(iii) to the best knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator involving the Company of a
character required to be disclosed in the Registration Statement which is
not adequately disclosed in the Prospectus, and there is no fran chise,
contract, agreement or document of a character required to be described in
the Registration Statement or Prospectus, or to be filed as an exhibit,
which is not described or filed as required;
(iv) the statements in the Prospectus under the captions "Management
of the Fund - Investment Manager," "Management of the Fund - Directors and
Officers," "Dividends and Distributions; Dividend Reinvestment and Cash
Purchase Plan," "Description of Capital Stock - Common Stock" and contained
in Item 3 of Part 2 of the Registration Statement that purport to summarize
the provisions of statutes, regulations and other documents are accurate
summaries in all material respects and present fairly the information
required to be shown, and the statements in the Prospectus under the
caption "Taxation" fairly summarize the matters described therein;
(v) the Registration Statement has become effective under the Act;
any required filing of the
19
<PAGE>
Prospectus, and any supplements thereto, pursuant to Rule 497(b), (d) or
(h) has been made in the manner and within the time period required by Rule
497(b), (d) or (h); to the best knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued,
no proceedings for that purpose have been instituted or threatened and the
Registration Statement and the Prospectus (other than the financial
statements and other financial and statistical information contained
therein as to which such counsel need express no opinion) comply as to form
in all material respects with the applicable requirements of the Investment
Company Act and the Act and the Rules and Regulations; and such counsel has
no reason to believe that at the Effective Date the Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus includes any
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company
of the transactions contemplated herein, except such as have been obtained
under the Act, the Exchange Act and the Investment Company Act and such as
may be required under the securities or blue sky laws of any jurisdiction
in connection with the purchase and distribution of the Securities by the
Underwriters and such other approvals (specified in such opinion) as have
been obtained;
(viii) to the best knowledge of such counsel after reasonable
inquiry, the Company is not in violation of any law ordinance,
administrative or governmental rule or regulation applicable to the Company
or of any decree of the Commission, the NASD, any state securities
commission, any national
20
<PAGE>
securities exchange, any arbitrator, any court or any other governmental,
regulatory, self-regulatory or administrative agency or any official having
jurisdiction over the Company;
(ix) neither (A) the operations and activities of the Company as
contemplated in the Prospectus, (B) the issue and sale of the Securities,
(C) the consummation of any other of the transactions herein contemplated,
nor (D) the fulfillment of the terms hereof will conflict with, result in a
breach or violation of, or constitute a default under any law or the
articles of incorporation or by-laws of the Company or the terms of any
indenture or other agreement or instrument known to such counsel and to
which the Company is a party or by which it is bound or any judgment, order
or decree known to such counsel to be applicable to the Company of any
court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the Company;
(x) the Management Agreement, the Custodian Agreement and the
Transfer Agency Agreement have been duly authorized, executed and delivered
by the Company, comply as to form with all applicable provisions of the
Investment Company Act and are legal, valid, binding and enforceable
obligations of the Company, subject, as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium or other similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law) or by an implied covenant of good
faith and fair dealing; and
(xi) the Company is registered with the Commission under the
Investment Company Act as a closed-end diversified management investment
company, and all required action has been taken under the Act and
Investment Company Act to make the public offering and consummate the sale
of the Securities under this Agreement, and the provisions of the articles
of incorporation and by-laws of the Company do not conflict with the
Investment Company
21
<PAGE>
Act or the Rules and Regulations of the Commission thereunder;
In rendering such opinion, such counsel may limit such opinion to matters
involving the application of the laws of the State of New York, the State of
Maryland and the United States and may rely (A) as to matters involving the
application of laws of the State of Maryland, to the extent they deem proper and
specified in such opinion, upon the opinion of [ ] or other counsel of
good standing whom they believe to be reliable and who are satisfactory to
counsel for the Underwriters and (B) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company, the
Investment Manager and public officials. References to the Prospectus in this
Section 6(b) include any supplements thereto at the Closing Date.
Although such counsel has not undertaken, except as otherwise
indicated in their opinion, to determine independently and does not assume any
responsibility for, the accuracy or completeness of the statements in the
Registration Statement, such counsel has participated in the preparation of the
Registration Statement and the Prospectus, including review and discussion of
the contents thereof and nothing has come to the attention of such counsel that
has caused it to believe that the Registration Statement, at the time the
Registration Statement became effective or the Prospectus, as of its date and as
of the Closing Date, as the case may be, or the date of any closing of the sale
of any Option Securities, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that any amendment or supplement
to the Prospectus, as of the Closing Date or the date of any closing of the sale
of any Option Securities, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and the notes thereto and the schedules and
other financial and statistical data included in the Registration Statement or
the Prospectus).
22
<PAGE>
(c) The Investment Manager shall have furnished to the
Representatives the opinion of internal counsel for the Investment Manager
reasonably acceptable to the Representatives, dated the Closing Date, to the
effect that:
(i) the Investment Manager is duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Dela ware, with full corporate power and authority to own its property and
conduct its business as described in the Prospectus, and is duly qualified
to do business as a foreign corporation and is in good standing under the
laws of each jurisdiction which requires such qualification wherein it owns
or leases material properties or conducts material business;
(ii) the Investment Manager is duly registered as an investment
adviser under the Advisers Act and is not prohibited by the Advisers Act or
the Investment Company Act, or the rules and regulations under either, from
acting as Investment Manager for the Company under the Management Agreement
and as contemplated in the Prospectus;
(iii) this Agreement and the Management Agreement have each been duly
authorized, executed and delivered by the Investment Manager, and the
Management Agreement constitutes a legal, valid and binding instrument
enforceable against the Investment Manager in accordance with its terms
(subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and other laws affecting creditors'
rights generally from time to time in effect);
(iv) neither (A) the operations and activities of the Investment
Manager as contemplated in the Prospectus, (B) the performance by the
Investment Manager of its obligations under the Investment Management
Agreements, nor (C) the consummation of the transactions contemplated
herein or in the Prospectus will conflict with, or result in a breach of,
or constitute a default under the certificate of incorporation or by-laws
of the Investment Manager or the terms of any indenture or other agreement
or
23
<PAGE>
instrument known to such counsel to which the Investment Manager or any of
its affiliates is a party or by which it is bound, or any law, order or
regulation known to such counsel to be applicable to the Investment Manager
of any court, regulatory body, administrative agency, governmental body,
stock exchange or securities association or any other authority or
arbitrator having jurisdiction over the Investment Manager or any of its
affiliates.
Although such counsel has not undertaken, except as otherwise
indicated in their opinion, to determine independently and does not assume any
responsibility for, the accuracy or completeness of the statements in the
Registration Statement, such counsel has participated in the preparation of the
Registration Statement and the Prospectus, including review and discussion of
the contents thereof and nothing has come to the attention of such counsel that
has caused it to believe that the Registration Statement, at the time the
Registration Statement became effective or the Prospectus, as of its date and as
of the Closing Date, as the case may be, or the date of any closing of the sale
of any Option Securities, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that any amendment or supplement
to the Prospectus, as of the Closing Date or the date of any closing of the sale
of any Option Securities, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and the notes thereto and the schedules and
other financial and statistical data included in the Registration Statement or
the Prospectus).
(d) The Representatives shall have received from Skadden, Arps,
Slate, Meagher & Flom LLP counsel for the Underwriters, such opinion or
opinions, dated the Closing Date, with respect to the issuance and sale of the
Securities, the Registration Statement, the Prospectus (together with any
supplement thereto) and other related matters as the Representatives may
reasonably require, and the Company shall have furnished to such
24
<PAGE>
counsel such documents as they request for the purpose of enabling them to pass
upon such matters.
(e) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the President
and the principal financial or accounting officer of the Company, dated the
Closing Date, to the effect that the signers of such certificate have carefully
examined the Registration Statement, the Prospectus, any supplement to the
Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of the
Closing Date with the same effect as if made on the Closing Date and the
Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement under the Act and no notice or order under Section 8(e) of the
Investment Company Act has been issued and no proceedings for either
purpose have been instituted or, to the Company's knowledge, threatened;
and
(iii) since the date of the most recent financial statements included
in the Prospectus (exclusive of any supplement thereto), there has been no
material adverse change in the condition (financial or other), earnings,
business or properties of the Company, whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto).
(f) The Investment Manager shall have furnished to the
Representatives a certificate of the Investment Manager, signed by the Chairman
of the Board, the President or any Vice President and the principal financial or
accounting officer of the Investment Manager, dated the Closing Date, to the
effect that the signers of such certificate have carefully examined the
Registration Statement, the Prospectus, any supplement to the Prospectus and
this Agreement and that the represen-
25
<PAGE>
tations and warranties of the Investment Manager in this Agreement are true and
correct in all material respects on and as of the Closing Date with the same
effect as if made on the Closing Date and the Investment Manager has complied
with all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date;
(g) At the Execution Time and at the Closing Date, [ ] shall
have furnished to the Representatives a letter or letters, dated respectively as
of the Execution Time and as of the Closing Date, in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants within the meaning of the Act and the respective applicable
published rules and regulations thereunder and stating in effect that:
(i) in their opinion the statement of assets and liabilities and
related notes included in the Registration Statement and the Prospectus and
reported on by them comply in form in all material respects with the
applicable accounting requirements of the Act and the Investment Company
Act and the Rules and Regulations;
(ii) on the basis of carrying out certain specified procedures (but
not an examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of significance with
respect to the comments set forth in such letter, a reading of the minutes
of the meetings of the stockholders, directors and committees thereof of
the Company, and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the Company, nothing
came to their attention which caused them to believe that at a specified
date no more than five business days prior to the date of the letter there
was any change in the shares of Common Stock or net assets or shareholders'
equity of the Company as compared with the amounts shown on the statement
of assets and liabilities included in the Prospectus, except in all
instances for changes or decreases set forth in such letter, in which case
the letter shall be accompanied by an explanation by the Company as to the
significance thereof unless
26
<PAGE>
said explanation is not deemed necessary by the Representatives.
References to the Prospectus in this paragraph (g) include any supplement
thereto at the date of the letter.
(h) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto),
there shall not have been (i) any change or decrease specified in the letter or
letters referred to in paragraph (g) of this Section 6 or (ii) any change, or
any development involving a prospective change, in or affecting the business or
properties of the Company the effect of which, in any case referred to in clause
(i) or (ii) above, is, in the judgment of the Representatives, so material and
adverse as to make it impractical or inadvisable to proceed with the offering or
the delivery of the Securities as contemplated by the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of any
supplement thereto).
(i) Prior to the Closing Date, the Company shall have furnished to
the Representatives such further information, certificates and documents as the
Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of
such cancellation shall be given to the Company in writing or by telephone or
telegraph confirmed in writing.
7. Reimbursement of Underwriters' Expenses.
---------------------------------------
The Company will pay all costs, expenses, fees and taxes incident to
the performance of its obligations under this Agreement, including, but not
limited to, expenses relating to (i) the preparation, printing and
27
<PAGE>
filing of the Registration Statement as originally filed and of each amendment
thereto, of the Preliminary Prospectuses, and of the Prospectus and any
amendments or supplements thereto, (ii) the preparation of the Company
Agreements, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the Underwriters, including stock transfer taxes, if any,
payable upon the sale, issuance and delivery of the Securities, (iv) the fees
and disbursements of the Company's counsel and accountants, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 5(e) of this Agreement, including filing fees and any fees
or disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of a Preliminary and Supplemental Blue Sky
Survey, (vi) the reproduction and delivery to the Underwriters of copies of the
Registration Statement as originally filed and of each amendment thereto, of the
Preliminary Prospectuses, and of the Prospectus and any amendments or
supplements thereto, (vii) the reproduction and delivery to the Underwriters of
copies of the Preliminary and Supplemental Blue Sky Survey and any legal
investment survey, (viii) the fees and expenses incurred with respect to filings
with the National Association of Securities Dealers, Inc., (ix) the preparation
and delivery to the Underwriters of any marketing brochure (excluding any
brochures distributed to brokers) and any tombstone advertisement placed by the
Company or placed by the Underwriters at the request of the Company, (x) the
fees and expenses incurred with respect to the listing of the Securities on the
New York Stock Exchange and the registration thereof under the Exchange Act, and
(xi) an amount not to exceed [ ] payable on the Closing Date to the Underwriters
in partial reimbursement of their expenses in connection with the offering.
If the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 6 hereof is not satisfied, because of any termination pursuant to
Section 10 hereof or because of any refusal, inability or failure on the part of
the Company to per form any agreement herein or comply with any provision hereof
other than by reason of a default by any of the Underwriters, the Company will
remain liable to pay all of the costs, expenses, fees and taxes specified in the
preceding paragraph and will reimburse the Underwriters
28
<PAGE>
severally upon demand for all out-of-pocket expenses (including reasonable fees
and disbursements of counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Company and the
--------------------------------
Investment Manager jointly and severally agree to indemnify and hold harmless
each Underwriter, the directors, officers, employees and agents of each
Underwriter, and each person who controls any Underwriter within the meaning of
either the Act or the Exchange Act against any and all losses, claims, damages
or liabilities, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or other Federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement for the registration of the Securities
as originally filed or in any amendment thereof, or in any Preliminary
Prospectus or the Prospectus, or in any amendment thereof or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and agrees to reimburse each such indemnified
party, as incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company and the Investment
-------- -------
Manager will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion therein. This indemnity agreement will be in addition
to any liability which the Company or the Investment Manager may otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company and the Investment Manager, each of its respective directors, each
of its respective officers who signs the Registration State-
29
<PAGE>
ment, and each person who controls the Company and the Investment Manager within
the meaning of either the Act or the Exchange Act, to the same extent as the
foregoing indemnity to each Underwriter, but only with reference to written
information relating to such Underwriter furnished to the Company by or on
behalf of such Underwriter through the Representatives specifically for
inclusion in the documents referred to in the foregoing indemnity. This
indemnity agreement will be in addition to any liability which any Underwriter
may otherwise have. The Company and the Investment Manager acknowledge that the
statements set forth in the last paragraph of the cover page and under the
heading "Underwriting" in any Preliminary Prospectus and the Prospectus
constitute the only information furnished in writing by or on behalf of the
several Underwriters for inclusion in any Preliminary Prospectus or the
Prospectus, and you, as the Representatives, confirm that such statements are
correct.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
satisfactory to the indemnified party. Notwithstanding the indemnify ing party's
election to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear
30
<PAGE>
the reasonable fees, costs and expenses of such separate counsel if (i) the use
of counsel chosen by the indemnifying party to represent the indemnified party
would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action or (iv) the indemnifying party shall authorize the indemnified party
to employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Investment Manager,
jointly and severally, and the Underwriters agree to contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company, the Investment Manager and one or
more of the Underwriters may be subject in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Investment Manager
on the one hand and by the Underwriters on the other from the offering of the
Securities; provided, however, that in no case shall any Underwriter (except as
-------- -------
may be provided in any agreement among underwriters relating to the offering of
the Securities) be responsible for any amount in excess of the underwriting
31
<PAGE>
discount or commission applicable to the Securities purchased by such
Underwriter hereunder. If the allocation provided by the immediately preceding
sentence is unavailable for any reason, the Company and the Investment Manager,
jointly and severally, and the Underwriters shall contribute in such proportion
as is appropriate to reflect not only such relative benefits but also the
relative fault of the Company and the Investment Manager on the one hand and of
the Underwriters on the other in connection with the statements or omissions
which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company and the Investment Manager
shall be deemed to be equal to the total net proceeds from the offering (before
deducting expenses), and benefits received by the Underwriters shall be deemed
to be equal to the total underwriting discounts and commissions, in each case as
set forth on the cover page of the Prospectus. Relative fault shall be
determined by reference to whether any alleged untrue statement or omission
relates to information provided by the Company, the Investment Manager or by the
Underwriters. The Company, the Investment Manager and the Underwriters agree
that it would not be just and equitable if contribution were determined by pro
rata allocation or any other method of allocation which does not take account of
the equitable considerations referred to above. Notwithstanding the provisions
of this Section 8(d), no person guilty of fraudulent misrepresentation (within
the meaning of Section ll(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 8, each person who controls an Underwriter within the meaning of
either the Act or the Exchange Act and each director, officer, employee and
agent of an Underwriter shall have the same rights to contribution as such
Underwriter, and each person who controls the Company or the Investment Manager
within the meaning of either the Act or the Exchange Act, each officer of the
Company who shall have signed the Registration Statement and each director of
the Company shall have the same rights to contribution as the Company, subject
in each case to the applicable terms and conditions of this Section 8(d).
9. Default by an Underwriter. If any one or more Underwriters shall
-------------------------
fail to purchase and pay for any of the Securities agreed to be purchased by
such Under-
32
<PAGE>
writer or Underwriters hereunder and such failure to purchase shall constitute a
default in the performance of its or their obligations under this Agreement, the
remaining Underwriters shall be obligated severally to take up and pay for (in
the respective proportions which the amount of Securities set forth opposite
their names in Schedule I hereto bears to the aggregate amount of Securities set
forth opposite the names of all the remaining Underwriters) the Securities which
the defaulting Underwriter or Underwriters agreed but failed to purchase;
provided, however, that in the event that the aggregate amount of Securities
- -------- -------
which the defaulting Underwriter or Underwriters agreed but failed to purchase
shall exceed 10% of the aggregate amount of Securities set forth in Schedule I
hereto, the remaining Underwriters shall have the right to purchase all, but
shall not be under any obligation to purchase any, of the Securities, and if
such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter, the
Investment Manager or the Company. In the event of a default by any Underwriter
as set forth in this Section 9, the Closing Date shall be postponed for such
period, not exceeding seven days, as the Representatives shall determine in
order that the required changes in the Registration Statement and the Prospectus
or in any other documents or arrangements may be effected. Nothing contained in
this Agreement shall relieve any defaulting Underwriter of its liability, if
any, to the Company, the Investment Manager, and any nondefaulting Underwriter
for damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination in
-----------
the absolute discretion of the Representatives, by notice given to the Company
prior to delivery of and payment for the Securities, if prior to such time (i)
trading in the Company's Common Stock shall have been suspended by the
Commission or the New York Stock Exchange or trading in securities generally on
the New York Stock Exchange shall have been suspended or limited or minimum
prices shall have been established on such Exchange, (ii) a banking moratorium
shall have been declared either by Federal or New York State authorities or
(iii) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war or other
calamity or crisis the effect of which on financial markets is such
33
<PAGE>
as to make it, in the judgment of the Representatives, impracticable or
inadvisable to proceed with the offering or delivery of the securities as
contemplated by the Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter, the Investment Manager,
or the Company or any of the officers, directors or controlling persons referred
to in Section 8 hereof, and will survive delivery of and payment for the
Securities. The provisions of Sections 7 and 8 hereof shall survive the
termination or cancellation of this Agreement.
12. Notices. All communications hereunder will be in writing and
-------
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telegraphed and confirmed to them, care of Salomon Smith Barney, at
[388 Greenwich Street], New York, New York, [10013], attention: [ ];
or, if sent to the Company, will be mailed, delivered or telegraphed and
confirmed to care of Salomon Brothers Asset Management Inc, Seven World Trade
Center, New York, New York 10048, attention: [ ].
13. Successors. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and construed
--------------
in accordance with the laws of the State of New York.
15. Counterparts. This agreement may be signed in any number of
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
34
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
Very truly yours,
SALOMON BROTHERS HIGH INCOME
FUND II INC
By:__________________________
Name:
Title:
SALOMON BROTHERS ASSET
MANAGEMENT INC
By:__________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
SALOMON SMITH BARNEY
[ ]
By: SALOMON SMITH BARNEY
By:______________________
Name:
Title:
For themselves and the other several
Underwriters named in Schedule I to the
foregoing Agreement.
35
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Number of Shares
of Underwritten
Securities
Underwriters to Be Purchased
-------------- ----------------
- ----------------------------------------------------------
<S> <C>
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
36
<PAGE>
Exhibit 99.2h2
MASTER AGREEMENT AMONG UNDERWRITERS
-----------------------------------
July 18, 1985
Smith Barney, Harris Upham & Co. Incorporated
1345 Avenue of the Americas
New York, N.Y. 10105
Dear Sirs:
We understand that from time to time you may act as Representative or
as one of the Representatives of the several underwriters of offerings of
securities of various issuers. This Agreement shall apply to any offering of
securities handled by your Corporate Syndicate Department in which we elect to
act as an underwriter after receipt of an invitation from your Corporate
Syndicate Department which shall identify the issuer, contain information
regarding certain terms of the securities to be offered and specify the amount
of our proposed participation and the names of the other Representatives, if
any, and that our participation as an underwriter in the offering shall be
subject to the provisions of this Agreement. Your invitation will include
instructions for our acceptance of such invitation. At or prior to the time of
an offering, you will advise us, to the extent applicable, as to the expected
offering date, the expected closing date, the initial public offering price, the
interest or dividend rate (or the method by which such rate is to be
determined), the conversion price, the underwriting discount, the management
fee, the selling concession and the reallowance, except that if the public
offering price of the securities is to be determined by a formula based upon the
market price of certain securities (such procedure being hereinafter referred to
as "Formula Pricing"), you shall so advise us and shall specify the maximum
underwriting discount, management fee and selling concession. Such information
may be conveyed by you in one or more communications (such communications
received by us with respect to the offering are hereinafter collectively
referred to as the "Invitation"). If the Underwriting Agreement (as hereinafter
defined) provides for the granting of an option to purchase additional
securities to cover over-allotments, you will notify us, in the Invitation, of
such option.
This Agreement, as amended or supplemented by the Invitation, shall
become effective with respect to our participation in an offering of securities
if your Corporate Syndicate Department receives our oral or written acceptance
and does not subsequently receive a written communication revoking our
acceptance prior to the time and date specified in the Invitation (our unrevoked
acceptance after expiration of such time and date being hereinafter referred to
as our "Acceptance"). Our Acceptance will constitute our confirmation that,
except as otherwise stated in such Acceptance, each statement included in the
Master Underwriters' Questionnaire set forth as Exhibit A
<PAGE>
2
hereto (or otherwise furnished to us) is correct. The issuer of the securities
in any offering of securities made pursuant to this Agreement is hereinafter
referred to as the "Issuer". If the Underwriting Agreement does not provide for
an over-allotment option, the securities to be purchased are hereinafter
referred to as the "Securities"; if the Underwriting Agreement provides for an
over-allotment option, the securities the Underwriters (as hereinafter defined)
are initially obligated to purchase pursuant to the Underwriting Agreement are
hereinafter called the "Firm Securities" and any additional securities which may
be purchased upon exercise of the over-allotment option are hereinafter called
the "Additional Securities", with the Firm Securities and all or any part of the
Additional Securities being hereinafter collectively referred to as the
"Securities". Any underwriters of Securities under this Agreement, including
the Representatives (as hereinafter defined), are hereinafter collectively
referred to as the "Underwriters". All references herein to "you" or to the
"Representatives" shall mean Smith Barney, Harris Upham & Co. Incorporated and
the other firms, if any, which are named as Representatives in the Invitation.
The Securities to be offered may, but need not, be registered for a delayed or
continuous offering pursuant to Rule 415 under the Securities Act of 1933 (the
"1933 Act").
The following provisions of this Agreement shall apply separately to
each individual offering of Securities. This Agreement may be supplemented or
amended by you by written notice to us and, except for supplements or amendments
set forth in an Invitation relating to a particular offering of Securities, any
such supplement or amendment to this Agreement shall be effective with respect
to any offering of Securities to which this Agreement applies after this
Agreement is so amended or supplemented.
1. UNDERWRITING AGREEMENT; AUTHORITY OF REPRESENTATIVES. We
----------------------------------------------------
authorize you to execute and deliver an underwriting or purchase agreement and
any amendment or supplement thereto and any associated Terms Agreement or other
similar agreement (collectively, the "Underwriting Agreement") on our behalf
with the Issuer and/or any selling securityholder with respect to the Securities
in such form as you determine. We will be bound by all terms of the
Underwriting Agreement as executed. We understand that changes may be made in
those who are to be Underwriters and in the amount of Securities to be purchased
by them, but the amount of Securities to be purchased by us in accordance with
the terms of this Agreement and the Underwriting Agreement, including the amount
of Additional Securities, if any, which we may become obligated to purchase by
reason of the exercise of any over-allotment option provided in the Underwriting
Agreement, shall not be changed without our consent.
As Representatives of the Underwriters, you are authorized to take
such action as you deem necessary or advisable to carry out this Agreement, the
Underwriting Agreement, and the
<PAGE>
3
purchase, sale and distribution of the Securities, and to agree to any waiver or
modification of any provision of the Underwriting Agreement. To the extent
applicable, you are also authorized to determine (i) the amount of Additional
Securities, if any, to be purchased by the Underwriters pursuant to any over-
allotment option and (ii) with respect to offerings using Formula Pricing, the
initial public offering price and the price at which the Securities are to be
purchased in accordance with the Underwriting Agreement. It is understood and
agreed that Smith Barney, Harris Upham & Co. Incorporated may act on behalf of
all Representatives.
It is understood that, if so specified in the Invitation, arrangements
may be made for the sale of Securities by the Issuer pursuant to delayed
delivery contracts (hereinafter referred to as "Delayed Delivery Contracts").
References herein to delayed delivery and Delayed Delivery Contracts apply only
to offerings to which delayed delivery is applicable. The term "underwriting
obligation", as used in this Agreement with respect to any Underwriter, shall
refer to the amount of Securities, including any Additional Securities (plus
such additional Securities as may be required by the Underwriting Agreement in
the event of a default by one or more of the Underwriters) which such
Underwriter is obligated to purchase pursuant to the provisions of the
Underwriting Agreement, without regard to any reduction in such obligation as a
result of Delayed Delivery Contracts which may be entered into by the Issuer.
If the Securities consist in whole or in part of debt obligations
maturing serially, the serial Securities being purchased by each Underwriter
pursuant to the Underwriting Agreement will consist, subject to adjustment as
provided in the Underwriting Agreement, of serial Securities of each maturity in
a principal amount which bears the same proportion to the aggregate principal
amount of the serial Securities of such maturity to be purchased by all the
Underwriters as the principal amount of serial Securities set forth opposite
such Underwriter's name in the Underwriting Agreement bears to the aggregate
principal amount of the serial Securities to be purchased by all the
Underwriters.
2. REGISTRATION STATEMENT PROSPECTUS; OFFERING CIRCULAR. In the case
----------------------------------------------------
of an Invitation regarding an offer of Securities registered under the 1933 Act
(a "Registered Offering"), you will furnish to us, to the extent made available
to you by the Issuer, copies of any registration statement or registration
statements relating to the Securities which may be filed with the Securities and
Exchange Commission (the "Commission") pursuant to the 1933 Act and of each
amendment thereto (excluding exhibits but including any documents incorporated
by reference therein). Such registration statement(s) as amended, and the
prospectus(es) relating to the sale of Securities by the Issuer constituting a
part thereof, including all documents incorporated therein by reference, as
<PAGE>
4
from time to time amended or supplemented by the filing of documents pursuant to
the Securities Exchange Act of 1934 (the "1934 Act"), the 1933 Act or otherwise,
are referred to herein as the "Registration Statement" and "Prospectus",
respectively; provided, however, that a supplement to the Prospectus filed with
the Commission pursuant to Rule 424 under the 1933 Act with respect to an
offering of Securities (a "Prospectus Supplement") shall be deemed to have
supplemented the Prospectus only with respect to the offering of Securities to
which it relates.
With respect to Securities for which no Registration Statement is
filed with the Commission, you will furnish to us, to the extent made available
to you by the Issuer, copies of any offering circular or other offering
materials to be used in connection with the offering of the Securities and of
each amendment thereto (the "Offering Circular").
3. PUBLIC OFFERING. The sale of the Securities to the public shall
---------------
commence as soon as you deem advisable. We will not sell any Securities until
they are released by you for that purpose. When notified by you that the
Securities are released for sale, we will offer to the public in conformity with
the terms of offering set forth in the Prospectus or Offering Circular, such of
the Securities to be purchased by us ("our Securities") as are not reserved for
our account for sale to Selected Dealers and others pursuant to Section 5.
After the initial public offering, the public offering price and the concession
and discount therefrom may be changed by you by notice to the Underwriters, and
we agree to be bound by any such change.
If, in accordance with the terms of offering set forth in the
Prospectus or Offering Circular, the offering of the Securities is not at a
fixed price but at varying prices set by individual Underwriters based on market
prices or at negotiated prices, the provisions above relating to your right to
change the public offering price and concession and discount to dealers shall
not apply, and other references in this Section and elsewhere in this Agreement
to the public offering price or Selected Dealers' concession shall be deemed to
mean the prices and concessions determined by you from time to time in your
discretion.
If so directed in the Invitation, we will not sell any Securities to
any account over which we have discretionary authority. We will also comply
with any other restrictions which may be set forth in the Invitation.
The initial public advertisement with respect to the Securities shall
appear on such date, and shall include the names of such of the Underwriters, as
you may determine. Thereafter, any Underwriter may advertise at its own
expense.
4. DELAYED DELIVERY ARRANGEMENTS. We authorize you to act on our
-----------------------------
behalf in making all arrangements for the solicitation
<PAGE>
5
of offers to purchase Securities from the Issuer pursuant to Delayed Delivery
Contracts, and we agree that all such arrangements will be made only through you
(directly or through Underwriters or Selected Dealers). You may allow to
Selected Dealers in respect of such Securities a commission equal to the
concession allowed to Selected Dealers pursuant to Section 5.
The obligations of the Underwriters shall be reduced in the aggregate
by the principal amount of Securities covered by Delayed Delivery Contracts made
by the Issuer, the obligation of each Underwriter to be reduced by the principal
amount of such Securities, if any, allocated by you to such Underwriter. Your
determination of the allocation of Securities covered by Delayed Delivery
Contracts among the several Underwriters shall be final and conclusive, and we
agree to be bound by any notice delivered by you to the Issuer setting forth the
amount of the reduction in our obligation as a result of Delayed Delivery
Contracts.
Upon receiving payment from the Issuer of the fee for arranging
Delayed Delivery Contracts, you will credit our account with the portion of such
fee applicable to the Securities covered by Delayed Delivery Contracts allocated
to us. You will charge our account with any commission allocated to Selected
Dealers in respect of Securities covered by Delayed Delivery Contracts allocated
to us.
5. OFFERING TO SELECTED DEALERS AND OTHERS; MANAGEMENT OF OFFERING.
---------------------------------------------------------------
We authorize you, for our account, to reserve for sale and to sell to dealers
("Selected Dealers"), among whom any of the Underwriters may be included, such
amount of our Securities as you shall determine. Reservations for sales to
Selected Dealers for our account need not be in proportion to our underwriting
obligation, but sales of Securities reserved for our account for sale to
Selected Dealers shall be made as nearly as practicable in the ratio which the
amount of Securities reserved for our account bears to the aggregate amount of
Securities reserved for the account of all Underwriters, as calculated from day
to day. The price to Selected Dealers initially shall be in the public offering
price less a concession not in excess of the Selected Dealers concession set
forth in the Invitation. Selected Dealers shall be actually engaged in the
investment banking or securities business and shall be either members in good
standing of the National Association of Securities Dealers, Inc. (the "NASD") or
dealers with their principal place of business located outside the United
States, its territories and its possessions and not registered under the 1934
Act who agree to make no sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein. Each
Selected Dealer shall agree to comply with the provisions of Section 24 of
Article III of the Rules of Fair Practice of the NASD, and each foreign Selected
Dealer who is not a member of the NASD also shall agree to comply with the
NASD's interpretation with respect to free-riding and withholding, to comply, as
though it were a member of the NASD, with the provisions of Sections 8
<PAGE>
6
and 36 of Article III of such Rules of Fair Practice, and to comply with Section
25 of Article III thereof as that Section applies to a non-member foreign
dealer.
With your consent, the Underwriters may allow, and Selected Dealers
may reallow, a discount on sales to any dealer who meets the above NASD
requirements in an amount not in excess of the amount set forth in the
Invitation. Upon your request, we will advise you of the identity of any dealer
to whom we allow such a discount and any Underwriter or Selected Dealer from
whom we receive such a discount.
We also authorize you, for our account, to reserve for sale and to
sell our Securities at the public offering price to others, including
institutions and retail purchasers. Except for such sales which are designated
by a purchaser to be for the account of a particular Underwriter, such
reservations and sales shall be made as nearly as practicable in proportion to
our underwriting obligation, unless you agree to a smaller proportion at our
request.
At or before the time the Securities are released for sale, you shall
notify us of the amount of our Securities which have not been reserved for our
account for sale to Selected Dealers and others and which is to be retained by
us for direct sale.
We will from time to time, upon your request, report to you the amount
of Securities retained by us for direct sale which remains unsold and, upon your
request, deliver to you for our account, or sell to you for the account of one
or more of the Underwriters, such amount of our unsold Securities as you may
designate at the public offering price less an amount determined by you not in
excess of the concession to Selected Dealers. You may also repurchase
Securities from other Underwriters and Selected Dealers, for the account of one
or more of the Underwriters, at prices determined by you not in excess of the
public offering price less the concession to Selected Dealers.
You may from time to time deliver to any Underwriter, for carrying
purposes or for sale by such Underwriter, any of the Securities then reserved
for sale to, but not purchased and paid for by, Selected Dealers or others as
above provided, but to the extent that Securities are so delivered for sale by
such Underwriter, the amount of Securities then reserved for the account of such
Underwriter shall be correspondingly reduced. Securities delivered for carrying
purposes only shall be redelivered to you upon demand.
The Underwriters and Selected Dealers may, with your consent, purchase
Securities from and sell Securities to each other at the public offering price
less a concession not in excess of the concession to Selected Dealers.
<PAGE>
7
6. REPURCHASE OF SECURITIES NOT EFFECTIVELY PLACED. In recognition
-----------------------------------------------
of the importance of distributing the Securities to bona fide investors, we
agree to repurchase on demand any Securities sold by us, except through you,
which are purchased by you in the open market or otherwise during a period
terminating as provided in Section 16, at a price equal to the cost of such
purchase, including accrued interest, amortization of original issue discount or
dividends, commissions and transfer and other taxes, if any, on redelivery. The
certificates delivered to us need not be the identical certificates delivered to
you in respect of the Securities purchased. In lieu of requiring repurchase,
you may, in your discretion, sell such Securities for our account at such
prices, upon such terms and to such persons, including any of the other
Underwriters, as you may determine, charging the amount of any loss and expense,
or crediting the amount of any net profit, resulting from such sale, to our
account, or you may charge our account with an amount determined by you not in
excess of the concession to Selected Dealers.
7. STABILIZATION AND OVER-ALLOTMENT. In order to facilitate the
--------------------------------
distribution of the Securities, we authorize you, in your discretion, to
purchase and sell Securities, any securities into which the Securities are
convertible or for which the Securities are exchangeable, and any other
securities of the Issuer or any guarantor of the Securities specified in the
Invitation, in the open market or otherwise, for long or short account, at such
prices as you may determine, and, in arranging for sales to Selected Dealers or
others, to over-allot. You may liquidate any long position or cover any short
position incurred pursuant to this Section at such prices as you may determine.
You shall make such purchases and sales (including over-allotments) for the
accounts of the Underwriters as nearly as practicable in proportion to their
respective underwriting obligations. It is understood that, in connection with
any particular offering of Securities to which this Agreement applies, you may
have made purchases of any such securities for stabilizing purposes prior to the
time when we became one of the Underwriters, and we agree that any such
securities so purchased shall be treated as having been purchased for the
respective accounts of the Underwriters pursuant to the foregoing authorization.
At the close of business on any day our net commitment, either for long or short
account, resulting from such purchases or sales (including over-allotments)
shall not exceed 15% (or such other amount as may be specified in the
Invitation) of our underwriting obligation, except that such percentage may be
increased with the approval of a majority in interest of the Underwriters. We
will take up at cost on demand any Securities or any such other securities so
sold or over-allotted for our account, including accrued interest, amortization
of original issue discount or dividends, and we will pay to you on demand the
amount of any losses or expenses incurred for our account pursuant to this
Section. In the event of default by any Underwriter in respect of its
obligations under this Section, each non-defaulting Underwriter shall assume its
share of the
<PAGE>
8
obligations of such defaulting Underwriter in the proportion that its
underwriting obligation bears to the underwriting obligations of all non-
defaulting Underwriters without relieving such defaulting Underwriter of its
liability hereunder.
If you effect any stabilizing purchase pursuant to this Section, you
shall promptly notify us of the date and time of the first stabilizing purchase
and the date and time when stabilizing was terminated. You shall prepare and
maintain such records as are required to be maintained by you as manager
pursuant to Rule 17a-2 under the 1934 Act.
8. RULE 10B-6. We represent and agree that in connection with the
----------
offering of Securities we have complied and will comply with the provisions of
Rule 10b-6 under the 1934 Act as they apply to the offering of the Securities.
9. PAYMENT AND DELIVERY. At or before such time, on such dates and
--------------------
at such places as you may specify in the Invitation, we will deliver to you a
certified or official bank check in such funds as are specified in the
Invitation, payable to the order of Smith Barney, Harris Upham & Co.
Incorporated (unless otherwise specified in the Invitation) in an amount equal
to, as you direct, either (i) the public offering price or prices plus accrued
interest, amortization or original issue discount or dividends, if any, set
forth in the Prospectus or Offering Circular less the concession to Selected
Dealers in respect of the amount of Securities to be purchased by us in
accordance with the terms of this Agreement, or (ii) the amount set forth in the
Invitation with respect to the Securities to be purchased by us. We authorize
you to make payment for our account of the purchase price for the Securities to
be purchased by us against delivery to you of such Securities (which, in the
case of Securities which are debt obligations, may be in temporary form), and
the difference between such purchase price of the Securities and the amount of
our funds delivered to you therefor shall be credited to our account.
Delivery to us of Securities retained by us for direct sale shall be
made by you as soon as practicable after your receipt of the Securities. Upon
termination of the provisions of this Agreement as provided in Section 16, you
shall deliver to us any Securities reserved for our account for sale to Selected
Dealers and others which remain unsold at that time. If, upon termination of
the provisions of this Agreement specified in Section 16 hereof, an aggregate of
not more than 10% of the Securities remains unsold, you may, in your discretion,
sell such Securities at such prices as you may determine.
If we are a member of The Depository Trust Company or any other
depository or similar facility, you are authorized to make appropriate
arrangements for payment for and/or delivery through its facilities of the
Securities to be purchased by us, or, if we are not a member, settlement may be
made through a
<PAGE>
9
correspondent that is a member pursuant to our timely instructions to you.
Upon receiving payment for Securities sold for our account to Selected
Dealers and others, you shall remit to us an amount equal to the amount paid by
us to you in respect of such Securities and credit or charge our account with
the difference, if any, between such amount and the price at which such
Securities were sold.
In the event that the Underwriting Agreement for an offering provides
for the payment of a commission or other compensation to the Underwriters, we
authorize you to receive such commission or other compensation for our account.
10. MANAGEMENT COMPENSATION. As compensation for your services in
-----------------------
the management of the offering, we will pay you an amount equal to the
management fee specified in the Invitation in respect of the Securities to be
purchased by us pursuant to the Underwriting Agreement, and we authorize you to
charge our account with such amount. If there is more than one Representative,
such compensation shall be divided among the Representatives in such proportions
as they may determine.
11. AUTHORITY TO BORROW. We authorize you to advance your own funds
-------------------
for our account, charging current interest rates, or to arrange loans for our
account or the account of the Underwriters, as you may deem necessary or
advisable for the purchase, carrying, sale and distribution of the Securities.
You may execute and deliver any notes or other instruments required in
connection therewith and may hold or pledge as security therefor all or any part
of the Securities which we or such Underwriters have agreed to purchase. The
obligations of the Underwriters under loans arranged on their behalf shall be
several in proportion to their respective participations in such loans, and not
joint. Any lender is authorized to accept your instructions as to the
disposition of the proceeds of any such loans. You shall credit each
Underwriter with the proceeds of any loans made for its account.
12. BLUE SKY QUALIFICATION. You shall inform us, upon request, of
----------------------
the states and other jurisdictions of the United States in which it is believed
that the Securities are qualified for sale under, or are exempt from the
requirements of, their respective securities laws, but you assume no
responsibility with respect to our right to sell Securities in any jurisdiction.
You are authorized to file with the Department of State of the State of New York
a Further State Notice with respect to the Securities, if necessary.
If we propose to offer Securities outside the United States, its
territories or its possessions, we will take, at our own expense, such action,
if any, as may be necessary to comply
<PAGE>
10
with the laws of each foreign jurisdiction in which we propose to offer
Securities.
13. MEMBERSHIP IN NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.;
---------------------------------------------------------------
FOREIGN UNDERWRITERS. We understand that you are a member in good standing of
- --------------------
the NASD. We confirm that we are actually engaged in the investment banking or
securities business and are either (i) a member in good standing of the NASD or
(ii) a dealer with its principal place of business located outside the United
States, its territories and its possessions and not registered under the 1934
Act who hereby agrees to make no sales within the United States, its territories
or its possessions or to persons who are nationals thereof or residents therein
(except that we may participate in sales to Selected Dealers and others under
Section 5 of this Agreement). We hereby agree to comply with Section 24 of
Article III of the Rules of Fair Practice of the NASD, and if we are a foreign
dealer and not a member of the NASD we also hereby agree to comply with the
NASD's interpretation with respect to free-riding and withholding, to comply, as
though we were a member of the NASD, with the provisions of Sections 8 and 36 of
Article III of such Rules of Fair Practice, and to comply with Section 25 of
Article III thereof as that Section applies to a non-member foreign dealer.
14. DISTRIBUTION OF PROSPECTUSES; OFFERING CIRCULARS. We are
------------------------------------------------
familiar with Securities Act of 1933 Release No. 4968 and Rule 15c2-8 under the
1934 Act, relating to the distribution of preliminary and final prospectuses,
and we confirm that we will comply therewith, to the extent applicable, in
connection with any sale of Securities. You shall cause to be made available to
us, to the extent made available to you by the Issuer, such number of copies of
the Prospectus as we may reasonably request for purposes contemplated by the
1933 Act, the 1934 Act and the rules and regulations thereunder.
If an Invitation states that the offering is subject to the 48-hour
prospectus delivery requirement set forth in Rule 15c2-8(b), our Acceptance of
the Invitation shall be deemed to constitute confirmation that we have delivered
(or we will deliver) a copy of the preliminary prospectus to all persons to whom
we expect to confirm a sale of Securities and that such delivery was effected
(or will be effected) at least 48 hours prior to the mailing of such
confirmations of sale.
Our Acceptance of an Invitation relating to an offering made pursuant
to an Offering Circular shall constitute our agreement that, if requested by
you, we will furnish a copy of any amendment to a preliminary or final Offering
Circular to each person to whom we shall have furnished a previous preliminary
or final Offering Circular. Our Acceptance shall constitute our confirmation
that we have delivered and our agreement that we will deliver all preliminary
and final Offering Circulars required for compliance with the applicable federal
and state laws and the applicable rules and regulations of any regulatory
<PAGE>
11
body promulgated thereunder governing the use and distribution of offering
circulars by underwriters and, to the extent consistent with such laws, rules
and regulations, our Acceptance shall constitute our confirmation that we have
delivered and our agreement that we will deliver all preliminary and final
Offering Circulars which would be required if the provisions of Rule 15c2-8 (or
any successor provision) under the 1934 Act applied to such offering.
15. NET CAPITAL. The incurrence by us of our obligations hereunder
-----------
and under the Underwriting Agreement in connection with the offering of the
Securities will not place us in violation of the capital requirements of Rule
15c3-1 under the 1934 Act.
16. TERMINATION. With respect to each offering of Securities to
-----------
which this Agreement applies, all limitations in this Agreement on the price at
which the Securities may be sold, the period of time referred to in Section 6,
the authority granted by the first sentence of Section 7, and the restrictions
contained in Section 8 shall terminate at the close of business on the 45th day
after the commencement of the offering of such Securities. You may terminate
nay or all of such provisions at any time prior thereto by notice to the
Underwriters. All other provisions of this Agreement shall remain operative and
in full force and effect with respect to such offering.
17. EXPENSES AND SETTLEMENT. You may charge our account with any
-----------------------
transfer taxes on sales of Securities made for our account and with our
proportionate share (based upon our underwriting obligation) of all other
expenses incurred by you under this Agreement or otherwise in connection with
the purchase, carrying, sale or distribution of the Securities. With respect to
each offering of Securities to which this Agreement applies, the respective
accounts of the Underwriters shall be settled as promptly as practicable after
the termination of all the provisions of this Agreement as provided in Section
16, but you may reserve such amount as you may deem advisable for additional
expenses. Your determination of the amount to be paid to or by us shall be
conclusive. You may at any time make partial distributions of credit balances
or call for payment of debit balances. Any of our funds in your hands may be
held with your general funds without accountability for interest.
Notwithstanding any settlement, we will remain liable for any taxes on transfers
for our account and for our proportionate share (based upon our underwriting
obligation) of all expenses and liabilities which may be incurred by or for the
accounts of the Underwriters with respect to each offering of Securities to
which this Agreement applies.
18. INDEMNIFICATION. With respect to each offering of Securities
---------------
pursuant to this Agreement, we will indemnify and hold harmless each other
Underwriter and each person, if any, who controls each other Underwriter within
the meaning of Section 15
<PAGE>
12
of the 1933 Act, to the extent that and on the terms upon which we agree to
indemnify and hold harmless the Issuer and other specified persons as set forth
in the Underwriting Agreement.
19. CLAIMS AGAINST UNDERWRITERS. With respect to each offering of
---------------------------
Securities to which this Agreement applies, if at any time any person other than
an Underwriter asserts a claim (including any commenced or threatened
investigation or proceeding by any government agency or body) against one or
more of the Underwriters or against you as Representative(s) of the Underwriters
arising out of an alleged untrue statement or omission in the Registration
Statement (or any amendment thereto) or in any preliminary prospectus or the
Prospectus or any amendment or supplement thereto, or in any preliminary or
final Offering Circular, or relating to any transaction contemplated by this
Agreement, we authorize you to make such investigation, to retain such counsel
for the Underwriters and to take such action in the defense of such claim as you
may deem necessary or advisable. You may settle such claim with the approval of
a majority in interest of the Underwriters. We will pay our proportionate share
(based upon our underwriting obligation) of all expenses incurred by you
(including the fees and expenses of counsel for the Underwriters) in
investigating and defending against such claim and our proportionate share of
the aggregate liability incurred by all Underwriters in respect of such claim
(after deducting any contribution indemnification obtained pursuant to the
Underwriting Agreement, or otherwise, from persons other than Underwriters),
whether such liability is the result of a judgment against one or more of the
Underwriters or the result of any settlement. Any Underwriter may retain
separate counsel at its own expense. A claim against or liability incurred by a
person who controls an Underwriter shall be deemed to have been made against or
incurred by such Underwriter. In the event of default by any Underwriter in
respect of its obligations under this Section, the non-defaulting Underwriters
shall be obligated to pay the full amount thereof in the proportions that their
respective underwriting obligations bear to the underwriting obligations of all
non-defaulting Underwriters without relieving such defaulting Underwriter of its
liability hereunder.
20. DEFAULT BY UNDERWRITERS. Default by any Underwriter in respect
-----------------------
of its obligations hereunder or under the Underwriting Agreement shall not
release us from any of our obligations or in any way affect the liability of
such defaulting Underwriter to the other Underwriters for damages resulting from
such default. If one or more Underwriters default under the Underwriting
Agreement, if provided in the Underwriting Agreement you may (but shall not be
obligated to) arrange for the purchase by others, which may include yourselves
or other non-defaulting Underwriters, of all or a portion of the Securities not
taken up by the defaulting Underwriters.
<PAGE>
13
In the event that such arrangements are made, the respective
underwriting obligations of the non-defaulting Underwriters and the amounts of
the Securities to be purchased by others, if any, shall be taken as the basis
for all rights and obligations hereunder, but this shall not in any way affect
the liability of any defaulting Underwriter to the other Underwriters for
damages resulting from its default, nor shall any such default relieve any other
Underwriter of any of its obligations hereunder or under the Underwriting
Agreement except as herein or therein provided. In addition, in the event of
default by one or more Underwriters in respect of their obligations under the
Underwriting Agreement to purchase the Securities agreed to be purchased by them
thereunder and, to the extent that arrangements shall not have been made by you
for any person to assume the obligations of such defaulting Underwriter or
Underwriters, we agree, if provided in the Underwriting Agreement, to assume our
proportionate share, based upon our underwriting obligation, of the obligations
of each such defaulting Underwriter (subject to the limitations contained in the
Underwriting Agreement) without relieving such defaulting Underwriter of its
liability therefor.
In the event of default by one or more Underwriters in respect of
their obligations under this Agreement to take up and pay for any securities
purchased, or to deliver any securities sold or over-allotted, by you for the
respective accounts of the Underwriters, or to bear their proportion of expenses
or liabilities pursuant to this Agreement, and to the extent that arrangements
shall not have been made by you for any persons to assume the obligations of
such defaulting Underwriter or Underwriters, we agree to assume our
proportionate share, based upon our underwriting obligation, of the obligations
of each defaulting Underwriter without relieving any such defaulting Underwriter
of its liability therefor.
21. LEGAL RESPONSIBILITY. As Representative(s) of the Underwriters,
--------------------
you shall have no liability to us, except for your lack of good faith and for
obligations assumed by you in this Agreement and except that we do not waive any
rights that we may have under the 1933 Act or the 1934 Act or the rules and
regulations thereunder. No obligations not expressly assumed by you in this
Agreement shall be implied herefrom.
Nothing herein contained shall constitute the Underwriters an
association, or partners, with you, or with each other, or, except as otherwise
provided herein or in the Underwriting Agreement, render any Underwriter liable
for the obligations of any other Underwriter, and the rights, obligations and
liabilities of the Underwriters are several in accordance with their respective
underwriting obligations, and not joint.
If the Underwriters are deemed to constitute a partnership for federal
income tax purposes, we elect to be excluded from the application of Subchapter
K, Chapter 1, Subtitle A, of the Internal Revenue Code of 1954, as amended, and
<PAGE>
14
agree not to take any position inconsistent with such election, and you, as
Representative(s), are authorized, in your discretion, to execute on behalf of
the Underwriters such evidence of such election as may be required by the
Internal Revenue Service.
Unless we have promptly notified you in writing otherwise, our name as
it should appear in the Prospectus or Offering Circular and our address are set
forth below.
22. NOTICES. Any notice from you shall be deemed to have been duly
-------
given if mailed or transmitted to us at our address appearing below.
23. GOVERNING LAW. This Agreement shall be governed by the laws of
-------------
the State of New York applicable to agreements made and to be performed in said
State.
Please confirm this Agreement and deliver a copy to us.
Very truly yours,
Name of Firm:
By _________________________________
Authorized Officer or Partner
Address:
---------------------------------
---------------------------------
---------------------------------
Confirmed as of the date
first above written.
Smith Barney, Harris Upham & Co. Incorporated
By ______________________________
Managing Director
<PAGE>
EXHIBIT A
---------
MASTER UNDERWRITERS' QUESTIONNAIRE
----------------------------------
In connection with each offering of Securities pursuant to the Smith
Barney, Harris Upham & Co. Incorporated Master Agreement Among Underwriters,
dated July 18, 1985 (the "Agreement"), each Underwriter confirms the following
information, except as indicated in such Underwriter's Acceptance or other
written communication furnished to Smith Barney, Harris Upham & Co.
Incorporated. Defined terms used herein have the same meaning as defined terms
in the Master Agreement Among Underwriters.
(a) Neither such Underwriter nor any of its directors, officers or
partners have any material (as defined in Regulation C under the 1933 Act)
relationship with the Issuer, its parent (if any), any other seller of the
Securities or any guarantor of the Securities.
(b) Except as described or to be described in the Agreement, the
Underwriting Agreement or the Invitation, such Underwriter does not know: (i)
of any discounts or commissions to be allowed or paid to dealers, including all
cash, securities, contracts, or other consideration to be received by any dealer
in connection with the sale of the Securities, or of any other discounts or
commissions to be allowed or paid to the Underwriters or of any other items that
would be deemed by the NASD to constitute underwriting compensation for purposes
of the NASD's Rules of Fair Practice, (ii) of any intention to over-allot, or
(iii) that the price of any security may be stabilized to facilitate the
offering of the Securities.
(c) No report or memorandum has been prepared for external use (i.e.,
outside such Underwriter's organization) by such Underwriter in connection with
the proposed offering of Securities and, in the case of a Registered Offering,
where the Registration Statement is on Form S-1, such Underwriter has not
prepared or had prepared for it any engineering, management or similar report or
memorandum relating to the broad aspects of the business, operations or products
of the Issuer, its parent (if any) or any guarantor of the Securities within the
past twelve months. If any such report or memorandum has been prepared, furnish
to Smith Barney, Harris Upham & Co. Incorporated three copies thereof, together
with a statement as to the distribution of the report or memorandum, identifying
each class of persons to whom the report or memorandum was distributed, the
number of copies distributed to each class and the period of distribution.
(d) If the Securities are debt securities to be issued under an
indenture to be qualified under the Trust Indenture Act of 1939, neither such
Underwriter nor any of its directors, officers or partners is an "affiliate", as
that term is defined under the Trust Indenture Act of 1939, of the Trustee for
the
<PAGE>
2
Securities as specified in the Invitation, or of its parent (if any); neither
the Trustee nor its parent (if any) nor any of their directors or executive
officers is a director, officer, partner, employee, appointee or representative
of such Underwriter as those terms are defined in the Trust Indenture Act of
1939 or in the relevant instructions to Form T-1; neither such Underwriter nor
any of its directors, partners or executive officers, separately or as a group,
owns beneficially 1% or more of the shares of any class of voting securities of
the Trustee or of its parent (if any); and if such Underwriter is a corporation,
it does not have outstanding nor has it assumed or guaranteed any securities
issued otherwise than in its present corporate name, and neither the Trustee nor
its parent (if any) is a holder of any such securities.
(e) If the Issuer is a public utility, such Underwriter is not a
"holding company" or a "subsidiary company" or an "affiliate" of a "holding
company" or of a "public utility company", each as defined in the Public Utility
Holding Company Act of 1935.
(f) Neither such Underwriter nor any "group" (as that term is defined
in Section 13(d)(3) of the 1934 Act) of which it is a member is the beneficial
owner (determined in accordance with Rule 13d-3 under the 1934 Act) of more than
5% of any class of voting securities of the Issuer, its parent (if any), any
other seller of the Securities or any guarantor of the Securities nor does it
have any knowledge that more than 5% of any class of voting securities of the
Issuer is held or to be held subject to any voting trust or other similar
agreement.
<PAGE>
Exhibit 99.2h3
SALOMON BROTHERS HIGH INCOME FUND II INC
[66,666] SHARES
COMMON STOCK
-------------------
SELLING AGREEMENT
-----------------
May [ ], 1998
[Selected Dealer Address]
Dear Ladies and Gentlemen:
In connection with the offering of the above-captioned shares of
common stock (the "Shares") of Salomon Brothers High Income Fund II Inc (the
"Fund"), the undersigned, as representa tives (the "Representatives") of the
underwriters of the Shares (the "Underwriters"), have reserved, on behalf of the
several Underwriters, a portion of the Shares for sale to selected securities
dealers ("Selected Dealers") at the public offering price stated on the cover
page of the enclosed Prospectus dated [ ], 1998, minus the selling concession
stated in the Pro spectus under the caption "Underwriting" (the "Selling Conces
sion"). Salomon Brothers Asset Management Inc, the investment manager to the
Fund, has agreed to pay compensation in addition to the Selling Concession to
the Underwriters participating in this transaction. From such payment, the
Underwriters will pay or allow to the Selected Dealers in connection with the
sales of the Shares in the offering an amount which, when combined with the
Selling Concession, will equal an aggregate gross amount of $___ per Share
purchased by Selected Dealers (the "Concession"). We are pleased to invite you
to participate in this offering as a Selected Dealer.
<PAGE>
1. Sales to Selected Dealers. We are advising you by telegram of the
number of Shares reserved for purchase by you. Please advise Salomon Smith
Barney, 1345 Avenue of the Americas, 26th Floor, New York, New York 10105
(Attention: Corporate Syndi cate Department), by the time specified in such
telegram, of your acceptance of the Shares reserved for you. Notice of
acceptance received after the time specified and any application for addi
tional Shares will be treated as a subscription for Shares. Subscription books
may be closed by us at any time in our discre tion without notice, and the
right is reserved to reject any subscription in whole or in part. Notification
of allotments against the rejections of subscriptions will be made as promptly
as practicable. Sales of Shares to you will be subject to the terms and
conditions set forth in the Prospectus. In purchasing Shares, you must rely
only on the Prospectus, the receipt of which you acknowledge, and on no other
statements whatsoever, written or oral.
2. Offering Provisions. Shares purchased by you shall be promptly
reoffered to the public at $15.00 per Share except that an amount not exceeding
$___ per Share may be allowed to dealers who are actually engaged in the
investment banking or securities business, who execute the written agreement
prescribed by Rule 2740(c) of the Rules of Conduct of the National Association
of Securities Dealers, Inc. ("NASD") and who are members in good standing of the
NASD or are foreign dealers, not eligible for membership in the NASD, who
represent to you that they will promptly reoffer the Shares to the public at
$15.00 per Share and will abide by the conditions with respect to foreign
brokers and dealers set forth in the first paragraph of Section 5 hereof.
If we purchase on the open market, for the account of any of the
Underwriters, Shares sold to you, we may charge to your account the full
Concession for each Share so purchased, together with any broker's commission,
if any, and transfer tax paid in connection with such purchase, and you agree to
pay such amounts to us on demand. Alternatively, we may withhold payment of all
or any part of the Concession for a period of time and may deter mine not to
pay the Concession with respect to the Shares so purchased by us on the open
market. You will advise us from time to time, at our request, of the number of
Shares purchased by you hereunder remaining unsold and you agree to sell to us,
at our request, for the account of one or more of the Underwriters, such number
of such unsold Shares as we may designate, at $15.00 per Share less an amount to
be determined by us, not in excess of the full Concession.
2
<PAGE>
3. Delivery and Payment. Shares purchased by you hereun der shall be
paid for in full at $15.00 per Share or, if we shall so advise you, at such
price less all or any part of the Conces sion, at the office of Salomon Smith
Barney, 338 Greenwich Street, New York, New York 10013, at such time and on such
day as we may advise you, by certified or bank cashier's check payable in New
York Clearing House funds to the order of Salomon Smith Barney against delivery
of certificates evidencing the Shares. Notwithstanding the foregoing, at our
discretion, payment for and delivery of Shares purchased by you hereunder will
be made through the facilities of the Depository Trust Company, if you are a
member, unless you have otherwise notified us prior to the date specified in our
telegram to you, or, if you are not a member, settlement may be made through a
correspondent who is a member pursuant to instructions which you will send to us
prior to such specified date. If you are called upon to pay $15.00 per Share
for the Shares purchased by you the Concession will be paid to you, less any
amounts charged to your account pursuant to Section 2 above, after termination
of this Agreement. Delivery instructions must be in our hands at such address
and at such time as we request.
4. Termination. Selected Dealers will be governed by the conditions set
forth herein until this Agreement is terminated. We will advise you of the date
and time of termination of this Agreement or of designated provisions hereof.
5. Position of Selected Dealers and Underwriters. You represent that you
are actually engaged in the investment banking or securities business and are a
member in good standing of the NASD or that you are a foreign dealer, not
eligible for member ship in the NASD, which agrees not to offer or sell any
Shares in, or to persons who are nationals or residents of, the United States of
America. In making sales of Shares, if you are such a member, you agree to
comply with all applicable rules of the NASD, including, without limitation, the
NASD's Interpretation with Respect to Free-Riding and Withholding and Rule 2740
of the NASD's Rules of Conduct, or, if you are a foreign dealer, you agree to
comply with such Interpretation and Rules 2730, 2740 and 2750 of such Rules of
Conduct as though you were such a member, and with Rule 2420 as that Rule
applies to a non-member broker or dealer in a foreign country. You also confirm
that you have complied and will comply with the prospectus delivery require
ments of Rule 15c2-8 under the Securities Exchange Act of 1934, as amended
including Rule 15c2-8(b) which requires all participating dealers to distribute
a copy of the Preliminary Prospectus
3
<PAGE>
relating to the Shares to each Person to whom they expect to confirm a sale of
the Shares not less than 48 hours prior to the time they expect to mail such
confirmation. You are not autho rized to give any information or make any
representations other than those contained in the Prospectus, or to act as agent
for the Fund, any Underwriter or the undersigned. Notwithstanding the
termination of the Agreement, you shall remain liable for your proportionate
amount of any claim, demand or liability which may be asserted against you
alone, or against you together with other dealers purchasing Shares upon the
terms hereof, or against the undersigned, based upon the claim that the Selected
Dealers, or any of them, constitute an association, an unincorporated business
or other separate entity. As Representatives of each of the Underwriters, the
undersigned have full authority to take such action as may seem advisable to us
in respect to all matters pertaining to the offering of the Shares. Neither we,
as Representatives of the Underwriters, nor any of the Underwriters shall be
under any liability to you, except for obligations expressly assumed in this
Agreement and any liabilities under the Securities Act of 1933, as amended. No
obligations on our part will be implied or inferred herefrom. Each of the
Underwriters has authorized us to over-allot in arranging for sales of the
Shares to the Selected Dealers and to purchase and sell Shares for long or short
account. All communications to the undersigned relating to the subject matter of
this Agreement should be addressed to Salomon Smith Barney, 1345 Avenue of the
Americas, 26th Floor, New York, New York 10105 (Attention: Corporate Syndi cate
Department), and any notices to you shall be deemed to have been duly given if
mailed or telegraphed to you at such address as you shall indicate on the last
page of this Agreement or, if you shall not so indicate, the address shown on
the first page of this Agreement.
6. Blue Sky Matters. Neither we, as Representatives of the Underwriters,
nor any of the Underwriters will have any responsibility with respect to the
right of any dealer to sell Shares in any jurisdiction, notwithstanding any
information we may furnish in that connection. Please confirm your agreement to
the foregoing by signing in the space provided below and return ing to us the
enclosed counterpart of this Agreement.
4
<PAGE>
SALOMON SMITH BARNEY
[ ]
As Representatives of the
Several Underwriters
By: SALOMON SMITH BARNEY
By:________________________________
Name:
Title:
Confirmed as of the above date.
- --------------------------------
By:______________________________
Address:
- --------------------------------
- --------------------------------
- --------------------------------
5
<PAGE>
Exhibit 99.2k1
ADMINISTRATION AGREEMENT
MAY __, 1998
MUTUAL MANAGEMENT CORP.
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
Dear Sirs:
Salomon Brothers High Income Fund II Inc (the "Fund"), a corporation
organized under the laws of the State of Maryland, confirms its agreement with
Mutual Management Corp. ("MMC"), as follows:
1. INVESTMENT DESCRIPTION; APPOINTMENT
The Fund desires to employ its capital by investing and reinvesting in
investments of the kind and in accordance with the limitations specified in the
Articles of Incorporation of the Fund, as amended from time to time, in
its Registration Statement (the "Registration Statement") on Form N-2(File Nos.
333-48351 and 811-08709),and in such manner and to the extent as may from time
to time be approved by the Board of Directors of the Fund. Copies of the Fund's
Registration Statement and the Articles of Incorporation of the Fund have been
submitted to MMC. The Fund desires to employ and hereby appoints MMC as
administrator. MMC accepts this appointment and agrees to furnish services for
the compensation set forth below. MMC is hereby authorized to retain third
parties and is hereby authorized to delegate some or all of its duties and
obligations hereunder to such persons provided that such persons shall remain
under the general supervision of MMC.
2. SERVICES AS ADMINISTRATOR
Subject to the supervision and direction of the Board of Directors of
the Fund, MMC will (a) assist in supervising all aspects of the Fund's
operations except those performed by Salomon Brothers Asset Management Inc (the
"Adviser") under its investment advisory agreement with the Fund; (b) supply the
Fund with office facilities (which may be MMC's own offices) for providing its
services under this Agreement, statistical and research data, data processing
services, clerical, accounting and bookkeeping services, including but not
limited to, the calculation of the net asset value of shares of the Fund, the
calculation of internal auditing and legal services, internal executive and
administrative services, and stationary and office supplies; and (c) prepare
Board materials, reports to the shareholders of the Fund, tax returns and
reports to and filings with the Securities and Exchange Commission (the "SEC")
and state blue sky authorities.
3. COMPENSATION
In consideration of services rendered pursuant to this Agreement, the
Fund will pay MMC on the first business day of each month a fee for the previous
month at an annual
<PAGE>
2
rate of 0.10% of the value of the Fund's average weekly net assets plus the
proceeds of any outstanding borrowings used for leverage ("average weekly net
assets" means the average weekly value of the total assets of the Fund,
including the amount obtained from leverage and any proceeds from the issuance
of preferred stock, minus the sum of (i) accrued liabilities of the Fund, (ii)
any accrued and unpaid interest on outstanding borrowings and (iii) accumulated
dividends on shares of preferred stock). For purposes of this calculation,
average weekly net assets is determined at the end of each month on the basis of
the average net assets of the Fund for each week during the month. The assets
for each weekly period are determined by averaging the net assets at the last
business day of a week with the net assets at the last business day of the prior
week. Upon any termination of this Agreement before the end of any month, the
fee for such part of the month shall be prorated according to the proportion
which such period bears to the full monthly period and shall be payable upon the
date of termination of this Agreement. For the purpose of determining fees
payable to MMC, the value of the Fund's net assets shall be computed at the
times and in the manner specified in the Registration Statement as from time to
time in effect.
4. EXPENSES
MMC will bear all expenses in connection with the performance of its
services under this Agreement. The Fund shall be responsible for all of the
Fund's expenses and liabilities, including organizational and offering expenses
(which inc include out-of-pocket expenses, but not overhead or employee costs of
the Adviser); expenses for legal, accounting and auditing services; taxes and
governmental fees; dues and expenses incurred in connection with membership in
investment company organizations; fees and expenses incurred in connection with
listing the Fund's shares on any stock exchange; costs of printing and
distributing shareholder reports, proxy materials, prospectuses, stock
certificates and distribution of dividends; charges of the Fund's custodians,
sub-custodians, investment adviser, any sub-administrators, registrars, transfer
agents, dividend disbursing agents and dividend reinvestment plan agents;
payment for portfolio pricing services to a pricing agent, if any; fees of the
SEC; expenses of registering or qualifying securities of the Fund for sale;
freight and other charges in connection with the shipment of the Fund's
portfolio securities; fees and expenses of non-interested directors; travel
expenses or an appropriate portion thereof of directors and officers of the Fund
who are directors, officers or employees of the Adviser to the extent that such
expenses relate to attendance at meetings of the Board of Directors or any
committee thereof; salaries of shareholder relations personnel; costs of
shareholders meetings; insurance; interest; brokerage costs; litigation and
other extraordinary or non-recurring expenses.
5. STANDARD OF CARE
MMC shall exercise its best judgment in rendering the services listed
in paragraph 2 above. MMC shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates provided that nothing in this Agreement
shall be deemed to protect or purport to protect MMC against liability to the
Fund or to its shareholders to which MMC would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence on its
<PAGE>
3
part in the performance of its duties or by reason of MMC's reckless disregard
of its obligations and duties under this Agreement.
6. TERM OF AGREEMENT
This Agreement shall continue automatically (unless terminated as
provided herein) for two years from the date hereof and thereafter for
successive annual periods provided that such continuance is specifically
approved at least annually by the Board of Directors of the Fund. This Agreement
is terminable, without penalty, on 60 days' written notice, by the Board of
Directors of the Fund or by vote of holders of a majority of the Fund's shares,
or upon 90 days' written notice, by MMC.
7. SERVICE TO OTHER COMPANIES OR ACCOUNTS
The Fund understands that MMC now acts, will continue to act and may
act in the future as administrator to one or more other investment companies,
and the Fund has no objection to MMC's so acting. The Fund understands that the
persons employed by MMC to assist in the performance of MMC's duties hereunder
will not devote their full time to such service and nothing contained herein
shall be deemed to limit or restrict the right of MMC or any affiliate of MMC to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
[End of Text]
<PAGE>
4
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by signing and returning to us the enclosed copy
hereof.
Very truly yours,
Salomon Brothers High Income Fund II Inc
By:
---------------------
Title:
Accepted:
Mutual Management Corp.
By:
------------------------------------
Title:
<PAGE>
EXHIBIT 99.2k2
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this day of , 1998 between SALOMON BROTHERS
HIGH INCOME FUND II INC (the "Fund"), a corporation having its principal place
of business at and FIRST DATA INVESTOR SERVICES GROUP, INC. ("Investor Services
Group"), a Massachusetts corporation with principal offices at 4400 Computer
Drive, Westboro, Massachusetts 01581.
WITNESSETH
----------
WHEREAS, the Fund desires to appoint Investor Services Group as its
transfer agent, registrar, dividend disbursing agent and agent in connection
with certain other activities and Investor Services Group desires to accept such
appointment;
NOW THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and Investor Services Group agree as follows:
Article 1 Definitions.
-----------
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended from
time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give Oral
Instructions or Written Instructions on behalf of the Fund as indicated in
writing to Investor Services Group from time to time.
(c) "Board of Directors" shall mean the Board of Directors or Board
of Trustees of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time deposit,
or cause to be deposited or held under the name or account of such a
custodian pursuant to a Custodian Agreement.
(f) "1934 Act" shall mean the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder, all as amended from time
to time.
1
<PAGE>
(g) "1940 Act" shall mean the Investment Company Act of 1940 and the
rules and regulations promulgated thereunder, all as amended from time to
time.
(h) "Oral Instructions" shall mean instructions, other than Written
Instructions, actually received by Investor Services Group from a person
reasonably believed by Investor Services Group to be an Authorized Person;
(i) "Prospectus" shall mean the most recently dated Fund Prospectus
and Statement of Additional Information, including any supplements thereto
if any, which has become effective under the Securities Act of 1933 and the
1940 Act.
(j) "Shares" refers collectively to such shares of capital stock or
beneficial interest, as the case may be, or class thereof of the Fund as
may be issued from time to time.
(k) "Shareholder" shall mean a record owner of Shares of the Fund.
(l) "Written Instructions" shall mean a written communication signed
by a person reasonably believed by Investor Services Group to be an
Authorized Person and actually received by Investor Services Group.
Written Instructions shall include manually executed originals and
authorized electronic transmissions, including telefacsimile of a manually
executed original or other process.
Article 2 Appointment of Investor Services Group.
--------------------------------------
The Fund hereby appoints and constitutes Investor Services Group as
transfer agent and registrar for Shares of the Fund, dividend disbursing agent
and as shareholder servicing agent for the Fund and Investor Services Group
hereby accepts such appointments and agrees to perform the duties hereinafter
set forth.
Article 3 Duties of Investor Services Group.
---------------------------------
3.1 Investor Services Group shall be responsible for:
(a) Administering and/or performing the customary services of a
transfer agent; acting as service agent in connection with dividend and
distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance, transfer
and redemption or repurchase (including coordination with the Custodian) of
Shares, as more fully described in the written schedule of Duties of
Investor Services Group annexed hereto as Schedule A and incorporated
herein, and in accordance with the terms of the Prospectus of the Fund,
applicable law and the procedures established from time to time between
Investor Services Group and the Fund.
2
<PAGE>
(b) Recording the issuance of Shares and maintaining pursuant to Rule
17Ad-10(e) of the 1934 Act a record of the total number of Shares of the
Fund which are authorized, based upon data provided to it by the Fund, and
issued and outstanding. Investor Services Group shall provide the Fund on
a regular basis with the total number of Shares which are authorized and
issued and outstanding and shall have no obligation, when recording the
issuance of Shares, to monitor the issuance of such Shares or to take
cognizance of any laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Fund.
(c) Notwithstanding any of the foregoing provisions of this Agreement,
Investor Services Group shall be under no duty or obligation to inquire
into, and shall not be liable for: (i) the legality of the issuance or
sale of any Shares or the sufficiency of the amount to be received
therefor; (ii) the legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor; (iii) the legality of the
declaration of any dividend by the Board of Directors, or the legality of
the issuance of any Shares in payment of any dividend; or (iv) the legality
of any recapitalization or readjustment of the Shares.
3.2 Investor Services Group shall serve as agent for Shareholders pursuant
to the Fund's dividend reinvestment and cash purchase plan as amended from time
to time in accordance with the terms of the agreement to be entered into between
the Shareholders and Investor Services Group.
3.3 In addition to the duties set forth herein, Investor Services Group
shall perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the Fund
and Investor Services Group.
Article 4 Recordkeeping and Other Information.
-----------------------------------
4.1 Investor Services Group shall create and maintain all records required
of it pursuant to its duties hereunder and as set forth in Schedule A in
accordance with all applicable laws, rules and regulations, including records
required by Section 31(a) of the 1940 Act. All records shall be available
during regular business hours for inspection and use by the Fund. Where
applicable, such records shall be maintained by Investor Services Group for the
periods and in the places required by Rule 31a-2 under the 1940 Act.
4.2 Upon reasonable notice by the Fund, Investor Services Group shall make
available during regular business hours such of its facilities and premises
employed in connection with the performance of its duties under this Agreement
for reasonable visitation by the Fund, or any other person retained by the Fund
as may be necessary for the Fund to evaluate the quality of the services
performed by Investor Services Group pursuant hereto.
4.3 To the extent required by Section 31 of the 1940 Act, Investor
Services Group agrees that all such records prepared or maintained by Investor
Services Group relating to the
3
<PAGE>
services to be performed by Investor Services Group hereunder are the property
of the Fund and will be preserved, maintained and made available in accordance
with such section, and will be surrendered promptly to the Fund on and in
accordance with the Fund's request.
4.4 In case of any requests or demands for the inspection of Shareholder
records of the Fund, Investor Services Group will notify the Fund of such
request and secure Written Instructions as to the handling of such request.
Investor Services Group reserves the right, however, upon prior written notice
to the Fund, to exhibit the Shareholder records to any person whenever it is
advised by its counsel that it may be held liable for the failure to comply with
such request.
Article 5 Fund Instructions.
-----------------
5.1 Investor Services Group will have no liability when acting upon
Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written Instruction
thereof from the Fund. Investor Services Group will also have no liability when
processing Share certificates which it reasonably believes to bear the proper
manual or facsimile signatures of the officers of the Fund and the proper
countersignature of Investor Services Group.
5.2 At any time, Investor Services Group may request Written Instructions
from the Fund and may seek advice from legal counsel for the Fund, or its own
legal counsel, with respect to any matter arising in connection with this
Agreement, and it shall not be liable for any action taken or not taken or
suffered by it in good faith in accordance with such Written Instructions or in
accordance with the opinion of counsel for the Fund or for Investor Services
Group. Written Instructions requested by Investor Services Group will be
provided by the Fund within a reasonable period of time.
5.3 Investor Services Group, its officers, agents or employees, shall
accept Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Fund only if said representative is an
Authorized Person. The Fund agrees that all Oral Instructions shall be followed
within one business day by confirming Written Instructions, and that the Fund's
failure to so confirm shall not impair in any respect Investor Services Group's
right to rely on Oral Instructions.
Article 6 Compensation.
------------
6.1 The Fund will compensate Investor Services Group for the performance
of its obligations hereunder in accordance with the fees set forth in the
written Fee Schedule annexed hereto as Schedule B and incorporated herein.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund
agrees to pay, and will be billed separately for, out-of-pocket expenses
incurred by Investor Services Group in
4
<PAGE>
the performance of its duties hereunder. Out-of-pocket expenses shall include,
but shall not be limited to, the items specified in the written schedule of out-
of-pocket charges annexed hereto as Schedule C and incorporated herein. Schedule
C may be modified by written agreement between the parties. Unspecified out-of-
pocket expenses shall be limited to those out-of-pocket expenses reasonably
incurred by Investor Services Group in the performance of its obligations
hereunder.
6.3 Investor Services Group will transmit an invoice to the Fund as soon
as practicable after the end of each calendar month which will be detailed in
accordance with Schedule B, and the Fund agrees to pay all fees and out-of-
pocket expenses within thirty (30) days following the receipt of the respective
invoice.
6.4 Any compensation agreed to hereunder may be adjusted from time to time
by attaching to Schedule B, a revised Fee Schedule executed and dated by the
parties hereto.
Article 7 Documents.
---------
In connection with the appointment of Investor Services Group, the Fund
shall, on or before the date this Agreement goes into effect, but in any case
within a reasonable period of time for Investor Services Group to prepare to
perform its duties hereunder, deliver or cause to be delivered to Investor
Services Group the documents set forth in the written schedule of Fund Documents
annexed hereto as Schedule D.
Article 8 Transfer Agent System.
---------------------
8.1 Investor Services Group shall retain title to and ownership of any and
all data bases, computer programs, screen formats, report formats, interactive
design techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by Investor Services Group in connection
with the services provided by Investor Services Group to the Fund herein (the
"Investor Services Group System").
8.2 Investor Services Group hereby grants to the Fund a limited license to
the Investor Services Group System for the sole and limited purpose of having
Investor Services Group provide the services contemplated hereunder and nothing
contained in this Agreement shall be construed or interpreted otherwise and such
license shall immediately terminate with the termination of this Agreement.
8.3 In the event that the Fund, including any affiliate or agent of the
Fund or any third party acting on behalf of the Fund is provided with direct
access to the Investor Services Group System for either account inquiry or to
transmit transaction information, including but not limited to maintenance,
exchanges, purchases and redemptions, such direct access capability shall be
limited to direct entry to the Investor Services Group System by means of on-
line mainframe terminal entry or PC emulation of such mainframe terminal entry
and any other non-
5
<PAGE>
conforming method of transmission of information to the Investor Services Group
System is strictly prohibited without the prior written consent of Investor
Services Group.
Article 9 Representations and Warranties.
------------------------------
9.1 Investor Services Group represents and warrants to the Fund that:
(a) it is a corporation duly organized, existing and in good standing
under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to authorize
it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory agency as a
transfer agent and such registration will remain in effect for the duration
of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations
under this Agreement.
(f) the various procedures and systems which it has implemented with
regard to safeguarding from loss or damage attributable to fire, theft or
any other cause, the Fund's records and other data and Investor Services
Group's records, data equipment facilities and other property used in the
performance of its obligations hereunder are adequate and that it will make
such changes therein from time to time as may be reasonably necessary for
the secure performance of its obligations thereunder.
9.2 The Fund represents and warrants to Investor Services Group that:
(a) it is duly organized, existing and in good standing under the laws
of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to authorize it
to enter into this Agreement;
(d) a registration statement under the Securities Act of 1933, as
amended, and the 1940 Act is currently effective and will remain effective
during the term of this Agreement; and to the extent required by applicable
law, all required state securities law
6
<PAGE>
filings have been made and will continue to be made, with respect to all
Shares of the Fund being offered for sale; and
(e) all outstanding Shares are validly issued, fully paid and non-
assessable and when Shares are hereafter issued in accordance with the
terms of the Fund's Articles of Incorporation and its Prospectus, such
Shares shall be validly issued, fully paid and non-assessable.
Article 10 Indemnification.
---------------
10.1 Each party hereto (the "Indemnifying Party") will indemnify the
other party (the "Indemnified Party") against and hold it harmless from any and
all losses, claims, damages, liabilities or expenses of any sort or kind
(including reasonable counsel fees and expenses) resulting from any claim,
demand, action or suit or other proceeding (a "Claim") relating to this
Agreement or such Indemnified Party's duties under this Agreement unless such
Claim has resulted from a negligent failure to act or omission to act or bad
faith of the Indemnified Party in the performance of its duties hereunder. In
addition, Investor Services Group shall not be responsible for and the Fund
shall indemnify and hold Investor Services Group harmless from and against, any
Claim which may be asserted against Investor Services Group or for which
Investor Services Group may be held to be liable arising out of or attributable
to any of the following:
(a) any actions of Investor Services Group required to be taken
pursuant to this Agreement unless such Claim resulted from a negligent act
or omission to act or bad faith by Investor Services Group in the
performance of its duties hereunder;
(b) Investor Services Group's reasonable reliance on, or reasonable
use of information, data, records and documents (including but not limited
to magnetic tapes, computer printouts, hard copies and microfilm copies)
received by Investor Services Group from the Fund, or any authorized third
party acting on behalf of the Fund, including but not limited to the prior
transfer agent for the Fund, in the performance of Investor Services
Group's duties and obligations hereunder;
(c) the reliance on, or the implementation of, any Written or Oral
Instructions or any other instructions or requests of the Fund; and
(d) the offer or sales of shares in violation of any requirement
under the securities laws or regulations of any state that such shares be
registered in such state or in violation of any stop order or other
determination or ruling by any state with respect to the offer or sale of
such shares in such state provided that Investor Services Group has
complied with its obligations under this Agreement.
10.2 In any case in which the Indemnifying Party may be asked to
indemnify or hold the Indemnified Party harmless, the Indemnified Party will
notify the Indemnifying Party promptly
7
<PAGE>
after identifying any situation which it believes presents or appears likely to
present a claim for indemnification against the Indemnifying Party although the
failure to do so shall not prevent recovery by the Indemnified Party and shall
keep the Indemnifying Party advised with respect to all developments concerning
such situation. The Indemnifying Party shall have the option to defend the
Indemnified Party against any Claim which may be the subject of this
indemnification, and, in the event that the Indemnifying Party so elects, such
defense shall be conducted by counsel chosen by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party, and thereupon the Indemnifying
Party shall take over complete defense of the Claim and the Indemnified Party
shall sustain no further legal or other expenses in respect of such Claim. The
Indemnified Party will not confess any Claim or make any compromise in any case
in which the Indemnifying Party will be asked to provide indemnification, except
with the Indemnifying Party's prior written consent. The obligations of the
parties hereto under this Article 10 shall survive the termination of this
Agreement.
10.3 Any claim for indemnification under this Agreement must be made prior
to one year after the Indemnifying Party becomes aware of the event for which
indemnification is claimed.
10.4 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
Investor Services Group's sole and exclusive remedy for claims or other actions
or proceedings to which the Fund's indemnification obligations pursuant to this
Article 10 may apply.
Article 11 Standard of Care.
----------------
11.1 Investor Services Group shall at all times act in good faith and
agrees to use its best efforts within commercially reasonable limits to ensure
the accuracy of all services performed under this Agreement, but assumes no
responsibility for loss or damage to the Fund unless said errors are caused by
Investor Services Group's own negligence, bad faith or willful misconduct or
that of its employees.
11.2 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 12 Consequential Damages.
---------------------
IN NO EVENT AND UNDER NO CIRCUMSTANCES SHALL EITHER PARTY UNDER THIS
AGREEMENT BE LIABLE TO THE OTHER PARTY FOR INDIRECT LOSS OF PROFITS, REPUTATION
OR BUSINESS OR ANY OTHER CONSEQUENTIAL OR SPECIAL DAMAGES UNDER ANY PROVISION OF
THIS AGREEMENT OR FOR ANY ACT OR FAILURE TO ACT THEREUNDER.
Article 13 Term and Termination.
--------------------
8
<PAGE>
13.1 This Agreement shall be effective on the date first written above and
shall continue for a period of three (3) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of three (3) years ("Renewal Terms")
each, unless the Fund or Investor Services Group provides written notice to the
other of its intent not to renew. Such notice must be received not less than
ninety (90) days prior to the expiration of the Initial Term or the then current
Renewal Term.
13.3 In the event a termination notice is given by the Fund, all expenses
associated with movement of records and materials and conversion thereof to a
successor transfer agent will be borne by the Fund. Investor Services Group
will reasonably cooperate with the Fund and any successor transfer agent or
agents in the substitution process.
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party.
Article 14 Confidentiality.
---------------
14.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The
Fund and Investor Services Group shall exercise at least the same degree of
care, but not less than reasonable care, to safeguard the confidentiality of the
Confidential Information of the other as it would exercise to protect its own
confidential information of a similar nature. The Fund and Investor Services
Group shall not duplicate, sell or disclose to others the Confidential
Information of the other, in whole or in part, without the prior written
permission of the other party. The Fund and Investor Services Group may,
however, disclose Confidential Information to their respective parent
corporation, their respective affiliates, their subsidiaries and affiliated
companies and employees, provided that each shall use reasonable efforts to
ensure that the Confidential Information is not duplicated or disclosed in
breach of this Agreement. The Fund and Investor Services Group may also
disclose the Confidential Information to independent contractors, auditors, and
professional advisors, provided they first agree to be bound by the
confidentiality obligations substantially similar to this Section 14.1.
Notwithstanding the previous sentence, in no event shall either the Fund or
Investor Services Group disclose the Confidential Information to any competitor
of the other without specific, prior written consent.
14.2 Proprietary Information means:
9
<PAGE>
(a) any data or information that is competitively sensitive material,
and not generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance, operations,
customer relationships, customer profiles, sales estimates, business plans,
and internal performance results relating to the past, present or future
business activities of the Fund or Investor Services Group, their
respective subsidiaries and affiliated companies and the customers, clients
and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and secret
in the sense that its confidentiality affords the Fund or Investor Services
Group a competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation, reports,
data, specifications, computer software, source code, object code, flow
charts, databases, inventions, know-how, show-how and trade secrets,
whether or not patentable or copyrightable.
14.3 Confidential Information includes, without limitation, all documents,
inventions, substances, engineering and laboratory notebooks, drawings,
diagrams, specifications, bills of material, equipment, prototypes and models,
and any other tangible manifestation of the foregoing of either party which now
exist or come into the control or possession of the other. The term
"Confidential Information" does not include any information which (i) at the
time of disclosure or thereafter is generally available to the public (other
than as a result of disclosure directly or indirectly by either party in
violation hereof), (ii) is or becomes available to either party on a
nonconfidential basis from a source other than the Fund or Investor Services
Group, as the case may be, provided that, after due inquiry, such source was not
prohibited from disclosing such information to such party by a legal,
contractual or fiduciary obligation owed to either party or (iii) either party
can establish is already in such party's possession (other than information
furnished by or on behalf of either party).
14.4 If either party becomes legally compelled (including by deposition,
interrogatory, request for documents, subpoena, civil investigative demand or
similar process) to disclose any Confidential Information, such party will
provide the other party with prompt prior written notice of such requirements so
that such other party may seek a protective order or other appropriate remedy.
If such protective order or other remedy is not obtained, each party agrees to
disclose only that portion of the Confidential Information which such party is
advised by written opinion of outside counsel is legally required to be
disclosed and to take all reasonable steps to preserve the confidentiality of
the Confidential Information (including by obtaining an appropriate protective
order or other reliable assurance that confidential treatment will be accorded
the Confidential Information). In addition, each party agrees to not oppose any
action (and will, if and to the extent requested by the other party, cooperate
with, assist and join with the other party at the other party's expense, in any
reasonable action) by the other party to obtain an appropriate
10
<PAGE>
protective order or other reliable assurance that confidential treatment will be
accorded the Confidential Information.
Article 15 Force Majeure.
-------------
No party shall be liable for any default or delay in the performance of its
obligations under this Agreement if and to the extent such default or delay is
caused, directly or indirectly, by (i) fire, flood, elements of nature or other
acts of God; (ii) any outbreak or escalation of hostilities, war, riots or civil
disorders in any country, (iii) any act or omission of any governmental
authority; (iv) any labor disputes (whether or not the employees' demands are
reasonable or within the party's power to satisfy); or (v) nonperformance by a
third party or any similar cause beyond the reasonable control of such party,
including without limitation, failures or fluctuations in telecommunications or
other equipment. In any such event, the non-performing party shall be excused
from any further performance and observance of the obligations so affected only
for as long as such circumstances prevail and such party continues to use
commercially reasonable efforts to recommence performance or observance as soon
as practicable.
Article 16 Assignment and Subcontracting.
-----------------------------
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that
Investor Services Group may, in its sole discretion, assign all its right, title
and interest in this Agreement to an affiliate, parent or subsidiary, or upon
prior written consent of the Fund to the purchaser of substantially all of its
business. Investor Services Group may, in its sole discretion, engage
subcontractors to perform any of the obligations contained in this Agreement to
be performed by Investor Services Group provided that Investor Services Group
shall remain liable hereunder for any acts or omissions of any subcontractor as
if performed by Investor Services Group.
Article 17 Notice.
------
Any notice or other instrument authorized or required by this Agreement to
be given in writing to the Fund or Investor Services Group, shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Fund:
To Investor Services Group:
11
<PAGE>
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to Investor Services Group's General Counsel
Article 18 Governing Law/Venue.
-------------------
The Agreement shall be governed exclusively by the laws of the State of New
York without reference to the choice of law provisions thereof. Each party
hereto hereby agrees that (i) the Supreme Court of New York sitting in New York
County shall have exclusive jurisdiction over any and all disputes arising
hereunder; (ii) hereby consents to the personal jurisdiction of such court over
the parties hereto, hereby waiving any defense of lack of personal jurisdiction;
and (iii) appoints the person to whom notices hereunder are to be sent as agent
for service of process.
Article 19 Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 20 Captions.
--------
The captions of this Agreement are included for convenience of reference
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
Article 21 Publicity.
---------
Neither Investor Services Group nor the Fund shall release or publish news
releases, public announcements, advertising or other publicity relating to this
Agreement or to the transactions contemplated by it without the prior review and
written approval of the other party; provided, however, that either party may
make such disclosures as are required by legal, accounting or regulatory
requirements after making reasonable efforts in the circumstances to consult in
advance with the other party.
Article 22 Relationship of Parties/Non-Solicitation.
----------------------------------------
The parties agree that they are independent contractors and not partners or
co-venturers and nothing contained herein shall be interpreted or construed
otherwise.
Article 23 Entire Agreement; Severability.
------------------------------
12
<PAGE>
23.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. A party's waiver of a
breach of any term or condition in the Agreement shall not be deemed a waiver of
any subsequent breach of the same or another term or condition.
23.2 The parties intend every provision of this Agreement to be severable.
If a court of competent jurisdiction determines that any term or provision is
illegal or invalid for any reason, the illegality or invalidity shall not affect
the validity of the remainder of this Agreement. In such case, the parties
shall in good faith modify or substitute such provision consistent with the
original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
SALOMON BROTHERS HIGH INCOME FUND II INC
By:_________________________________________
Title:______________________________________
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:_________________________________________
Title:______________________________________
13
<PAGE>
Schedule A
Duties of Investor Services Group
---------------------------------
1. Shareholder Information. Investor Services Group shall maintain a
-----------------------
record of the number of Shares held by each Shareholder of record which shall
include name, address, taxpayer identification and which shall indicate whether
such Shares are held in certificates or uncertificated form.
2. Shareholder Services. Investor Services Group shall respond as
--------------------
appropriate to all inquiries and communications from Shareholders relating to
Shareholder accounts with respect to its duties hereunder and as may be from
time to time mutually agreed upon between Investor Services Group and the Fund.
Investor Services Group shall provide the Fund with reports concerning
shareholder inquiries and the responses thereto by Investor Services Group, in
such form and at such times as are agreed to by the Fund and Investor Services
Group.
3. Share Certificates.
------------------
(a) At the expense of the Fund, the Fund shall supply Investor
Services Group with an adequate supply of blank share certificates to meet
Investor Services Group requirements therefor. Such Share certificates shall be
properly signed by facsimile. The Fund agrees that, notwithstanding the death,
resignation, or removal of any officer of the Fund whose signature appears on
such certificates, Investor Services Group or its agent may continue to
countersign certificates which bear such signatures until otherwise directed by
Written Instructions.
(b) Investor Services Group shall issue replacement Share certificates
in lieu of certificates which have been lost, stolen or destroyed, upon receipt
by Investor Services Group of properly executed affidavits and lost certificate
bonds, in form satisfactory to Investor Services Group, with the Fund and
Investor Services Group as obligees under the bond.
(c) Investor Services Group shall also maintain a record of each
certificate issued, the number of Shares represented thereby and the Shareholder
of record. With respect to Shares held in open accounts or uncertificated form
(i.e., no certificate being issued with respect thereto) Investor Services Group
shall maintain comparable records of the Shareholders thereof, including their
names, addresses and taxpayer identification. Investor Services Group shall
further maintain a stop transfer record on lost and/or replaced certificates.
4. Mailing Communications to Shareholders; Proxy Materials. Investor
-------------------------------------------------------
Services Group will address and mail to Shareholders of the Fund, all reports to
Shareholders, dividend and distribution notices and proxy material for the
Fund's meetings of Shareholders. In connection with meetings of Shareholders,
Investor Services Group will prepare Shareholder lists, mail and certify as to
the mailing of proxy materials, process and tabulate returned proxy cards,
report on proxies voted prior to meetings, act as inspector of election at
meetings and certify Shares voted at meetings.
1
<PAGE>
5. Transfer.
--------
(a) Investor Services Group shall process all requests to transfer
Shares in accordance with the transfer procedures set forth in the Fund's
Prospectus.
(b) Investor Services Group will transfer Shares upon receipt of Oral
or Written Instructions or otherwise pursuant to the Prospectus and Share
certificates, if any, properly endorsed for transfer, accompanied by such
documents as Investor Services Group reasonably may deem necessary.
(c) Investor Services Group reserves the right to refuse to transfer
Shares until it is satisfied that the endorsement on the instructions is valid
and genuine. Investor Services Group also reserves the right to refuse to
transfer Shares until it is satisfied that the requested transfer is legally
authorized, and it shall incur no liability for the refusal, in good faith, to
make transfers which Investor Services Group, in its good judgment, deems
improper or unauthorized, or until it is reasonably satisfied that there is no
basis to any claims adverse to such transfer.
6. Dividends.
---------
(a) Upon the declaration of each dividend and each capital gains
distribution by the Board of Directors of the Fund with respect to Shares of the
Fund, the Fund shall furnish or cause to be furnished to Investor Services Group
Written Instructions setting forth the date of the declaration of such dividend
or distribution, the ex-dividend date, the date of payment thereof, the record
date as of which Shareholders entitled to payment shall be determined, the
amount payable per Share to the Shareholders of record as of that date, the
total amount payable on the payment date and whether such dividend or
distribution is to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution of the
Board of Directors, the Fund will provide Investor Services Group with
sufficient cash to make payment to the Shareholders of record as of such payment
date.
(c) If Investor Services Group does not receive sufficient cash from
the Fund to make total dividend and/or distribution payments to all Shareholders
of the Fund as of the record date, Investor Services Group will, upon notifying
the Fund, withhold payment to all Shareholders of record as of the record date
until sufficient cash is provided to Investor Services Group.
7. In addition to and neither in lieu nor in contravention of the
services set forth above, Investor Services Group shall: (i) perform all the
customary services of a transfer agent, registrar, dividend disbursing agent and
agent of the dividend reinvestment and cash purchase plan as described herein
consistent with those requirements in effect as at the date of this Agreement.
The detailed definition, frequency, limitations and associated costs (if any)
set out in
2
<PAGE>
the attached fee schedule, include but are not limited to: maintaining all
Shareholder accounts, preparing Shareholder meeting lists, mailing proxies,
tabulating proxies, mailing Shareholder reports to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts where
applicable, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders.
3
<PAGE>
Schedule B
FEE SCHEDULE
------------
1. Standard Fees.
Annual Per Account Fee: $ 10.50
Monthly Minimum Fee: $2,500.00
2. IPO Fees.
IPO Project Administration Fee: $7,500.00
IPO Project Administration Fee covers:
. Issuance of up to 1000 certificates - Issuance of certificates in excess
of 1000 to be billed at $2.00 per certificate
. Administration coordination with IPO client, underwriter and legal
representatives
. Attendance at closing (out of pocket expenses associated with such
attendance will be billed as incurred)
. Electronic delivery of shares to underwriters at closing
. Overallotment coordination
Overallotment Fee: $5,000.00
<PAGE>
Schedule C
OUT-OF-POCKET EXPENSES
----------------------
The Fund shall reimburse Investor Services Group monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
. Microfiche/microfilm production
. Magnetic media tapes and freight
. Printing costs, including certificates, envelopes, checks and stationery
. Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct pass
through to the Fund
. Due diligence mailings
. Telephone and telecommunication costs, including all lease, maintenance
and line costs
. Ad hoc reports
. Proxy solicitations, mailings and tabulations
. Daily & Distribution advice mailings
. Shipping, Certified and Overnight mail and insurance
. Year-end form production and mailings
. Terminals, communication lines, printers and other equipment and any
expenses incurred in connection with such terminals and lines
. Duplicating services
. Courier services
. Incoming and outgoing wire charges
. Federal Reserve charges for check clearance
. Overtime, as approved by the Fund
. Temporary staff, as approved by the Fund
. Travel and entertainment, as approved by the Fund
. Record retention, retrieval and destruction costs, including, but not
limited to exit fees charged by third party record keeping vendors
. Third party audit reviews
. Ad hoc SQL time
. Insurance
. Such other miscellaneous expenses reasonably incurred by Investor
Services Group in performing its duties and responsibilities under this
Agreement.
The Fund agrees that postage and mailing expenses will be paid on the day
of or prior to mailing as agreed with Investor Services Group. In addition, the
Fund will promptly reimburse Investor Services Group for any other unscheduled
expenses incurred by Investor Services Group whenever the Fund and Investor
Services Group mutually agree that such expenses are not otherwise properly
borne by Investor Services Group as part of its duties and obligations under the
Agreement.
1
<PAGE>
Schedule D
FUND DOCUMENTS
--------------
. Certified copy of the Articles of Incorporation of the Fund, as amended
. Certified copy of the By-laws of the Fund, as amended,
. Copy of the resolution of the Board of Directors authorizing the execution
and delivery of this Agreement
. Specimens of the certificates for Shares of the Fund, if applicable, in the
form approved by the Board of Directors of the Fund, with a certificate of
the Secretary of the Fund as to such approval
. All account application forms and other documents relating to Shareholder
accounts or to any plan, program or service offered by the Fund
. Certified list of Shareholders of the Fund with the name, address and
taxpayer identification number of each Shareholder, and the number of Shares
of the Fund held by each, certificate numbers and denominations (if any
certificates have been issued), lists of any accounts against which stop
transfer orders have been placed, together with the reasons therefore, and
the number of Shares redeemed by the Fund
. All notices issued by the Fund with respect to the Shares in accordance with
and pursuant to the Articles of Incorporation or By-laws of the Fund or as
required by law.
2
<PAGE>
Exhibit 99.2p
STOCK PURCHASE AGREEMENT
------------------------
Stock Purchase Agreement, dated as of May __, 1998, between Salomon
Brothers High Income Fund II Inc, a corporation organized under the laws of
Maryland (the "Fund") and Salomon Brothers Asset Management Inc, a corporation
organized under the laws of Delaware ("SBAM").
WHEREAS, the Fund is an investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund proposes to issue and sell shares of its common stock,
par value $.001 per share (the "Common Stock"), to the public pursuant to a
Registration Statement on Form N-2 (the "Registration Statement") filed with the
Securities and Exchange Commission; and
WHEREAS, Section 14(a) of the 1940 Act requires each registered investment
company to have a net worth of at least $100,000 before making a public offering
of its securities.
NOW, THEREFORE, the Fund and SBAM agree as follows:
1. The Fund offers to sell to SBAM, and SBAM agrees to purchase from
the Fund, _____ shares of Common Stock, at a price of $_____ per
share (the "Shares") on a date, to be specified by the Fund,
prior to the effective date of the Registration Statement.
2. SBAM represents and warrants to the Fund that it is acquiring the
Shares for investment purposes only and that the Shares will be
sold only pursuant to a registration statement under the
Securities Act of 1933, as amended, or an applicable exemption
from those registration requirements.
3. SBAM's right under this Stock Purchase Agreement to purchase the
Shares is not assignable.
<PAGE>
2
IN WITNESS WHEREOF, the Fund and SBAM have caused their duly
authorized officers to execute this Stock Purchase Agreement as of the date
first above written.
SALOMON BROTHERS HIGH INCOME
FUND II INC
By:
------------------------
Name:
Title:
SALOMON BROTHERS ASSET
MANAGEMENT
INC
By:
------------------------
Name:
Title:
