SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the registrant /X/
Filed by a party other than the registrant
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)2))
/ / Definitive Proxy Statement
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14(a)-12
Prospect Street High Income Portfolio Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) filing Proxy Statement, if other than Registrant)
Payment of filing fee (check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
<PAGE>
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0- 11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
<PAGE>
PROSPECT STREET HIGH INCOME PORTFOLIO INC.
60 State Street
Boston, Massachusetts 02109
January 6, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Prospect Street High Income Portfolio Inc. (the "Fund") to be held at 60
State Street, 37th Floor, Boston, Massachusetts 02109, on March 12, 1999 at
10:00 a.m. You will have an opportunity to hear a report on the Fund and to
discuss other matters of interest to you as a stockholder.
We hope that you will be able to attend the meeting. Whether or not you
plan to attend, please complete, date, sign and mail the enclosed proxy card to
assure that your shares are represented at the meeting.
Sincerely,
Richard E. Omohundro, Jr.
President
<PAGE>
PROSPECT STREET HIGH INCOME PORTFOLIO INC.
60 State Street
Boston, Massachusetts 02109
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on March 12, 1999
The Annual Meeting of Stockholders (the "Annual Meeting") of Prospect
Street High Income Portfolio Inc., a Maryland corporation (the "Fund"), will be
held at 60 State Street, 37th Floor, Boston, Massachusetts 02109, on March 12,
1999 at 10:00 a.m., for the following purposes:
To elect seven Directors of the Fund, to hold office until the next
annual meeting of stockholders and until their successors shall have been duly
elected and qualified;
To approve a new Advisory Agreement which will increase the annual
advisory fee to 0.70% of the Fund's average annual net assets up to and
including $200,000,000 and 0.65% of the excess of such managed assets over
$200,000,000;
To ratify the selection of Arthur Andersen LLP as independent public
accountants of the Fund for the fiscal year ending October 31, 1999; and
To transact such other business as may properly come before the Annual
Meeting and any adjournment thereof. The matters referred to above may be acted
upon at the Annual Meeting or any adjournment thereof.
The close of business on December 29, 1998 has been fixed as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the Annual Meeting and any adjournment thereof.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR HOLDINGS IN THE
FUND. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE
COMPLETE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU DESIRE
TO VOTE IN PERSON AT THE MEETING, YOU MAY REVOKE YOUR PROXY.
By Order of the Directors
January 6, 1999 Karen J. Thelen
Boston, Massachusetts Secretary
-2-
<PAGE>
PROSPECT STREET HIGH INCOME PORTFOLIO INC.
60 State Street
Boston, Massachusetts 02109
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
March 12, 1999
This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of Prospect Street High Income
Portfolio Inc., a Maryland corporation (the "Fund"), for use at the Fund's
Annual Meeting of Stockholders (the "Annual Meeting") to be held at 60 State
Street, 37th Floor, Boston, Massachusetts 02109, on March 12, 1999 at 10:00
a.m., and at any and all adjournments thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting dated January 6, 1999. The Fund is a
registered investment company under the Investment Company Act of 1940, as
amended (the "1940 Act").
This Proxy Statement and the accompanying Notice of Annual Meeting and
form of proxy will be first sent to stockholders on or about January 6, 1999.
The Board of Directors has fixed the close of business on December 29, 1998 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Annual Meeting. As of the record date, __________ shares of the
Fund's Common Stock, $.01 par value per share (the "Common Stock"), were issued
and outstanding. Holders of Common Stock have one vote per share on all matters
submitted to stockholders. To the Fund's knowledge, no person beneficially owned
shares of the Fund representing more than five percent of the total voting power
of all outstanding shares at December 29, 1998. The Board of Directors is
authorized by the Fund's Articles of Incorporation to issue preferred stock in
one or more series without shareholder approval, but no such class is currently
outstanding.
Shares of Common Stock represented by properly executed proxies with
respect to which a vote is withheld, an abstention is indicated, or a broker
does not vote will be treated as shares that are present and entitled to vote
for purposes of determining a quorum. However, under applicable Maryland law,
abstentions and broker non-votes will not be treated as having been voted for
purposes of determining the approval of Proposal 2.
If the accompanying form of proxy is properly executed and returned in
time to be voted at the Annual Meeting, the shares covered thereby will be voted
in accordance with the instructions marked thereon by the stockholder. Executed
proxies that are unmarked will be voted (1) FOR the election of the applicable
nominees named herein as Directors of the Fund, (2) FOR approval of a proposal
to adopt a new Advisory Agreement which would amend the current 0.50% to 0.65%
tiered advisory fee structure and would increase the annual advisory fee to
0.70% of the Fund's average annual net assets up to and including $200,000,000
and 0.65% of the excess of such managed assets over $200,000,000, (3) FOR
-3-
<PAGE>
the proposal to ratify the selection of Arthur Andersen LLP as independent
public accountants of the Fund for the fiscal year ending October 31, 1999, and
(4) in the discretion of the persons named as proxies in connection with any
other matter which may properly come before the Annual Meeting or any
adjournment thereof. The Board of Directors does not know of any matter to be
considered at the Annual Meeting other than the matters referred to above. A
stockholder may revoke his or her proxy prior to its use by appearing at the
Annual Meeting and voting in person, by giving written notice of such revocation
to the Secretary of the Fund or by returning a subsequently dated proxy.
Shares of Common Stock representing a majority of the votes entitled to
be cast shall constitute a quorum at the Annual Meeting. In the event a quorum
is not present at the Annual Meeting or in the event a quorum is present at the
Annual Meeting but sufficient votes to approve any of the proposals are not
received, the persons named as proxies may propose one or more adjournments of
the Annual Meeting to permit further solicitation of proxies. A stockholder vote
may be taken on one or more of the proposals in this Proxy Statement prior to
such adjournment if sufficient votes have been received and such vote is
otherwise appropriate. Any such adjournment will require the affirmative vote of
a majority of those shares present at the Annual Meeting in person or by proxy.
In addition to solicitation of proxies by mail, officers of the Fund
and officers and regular employees of Prospect Street Investment Management Co.,
Inc. (the "Manager"), affiliates of the Manager or other representatives of the
Fund may also solicit proxies by telephone or telegraph or in person. The Fund
may retain a proxy solicitation firm to assist in the solicitation of proxies.
The costs of retaining such a firm, which the Fund does not anticipate will
exceed $10,000, would depend upon the amount and type of services rendered. The
costs of proxy solicitation and expenses incurred in connection with preparing
this Proxy Statement and its enclosures will be paid by the Fund.
THE INVESTMENT ADVISER
Prospect Street Investment Management Co., Inc., with its principal
office at 60 State Street, Boston, Ma 02109, has served as the investment
adviser to the Fund since its inception in November 1988.
PROPOSAL 1
ELECTION OF DIRECTORS
The stockholders of the Fund are being asked to elect the following
seven nominees as Directors of the Fund, to serve as such until the next annual
meeting of the Fund's stockholders and until their successors shall have been
duly elected and qualified. All nominees named below are presently serving as
Directors of the Fund. All shares
-4-
<PAGE>
represented by valid proxies will be voted in the election of Directors for the
applicable nominees named below, unless authority to vote for a particular
nominee is withheld. Each nominee has agreed to serve as a Director if elected.
If any such nominee is not available for election at the time of the Annual
Meeting, the persons named as proxies will vote for such substitute nominee as
the Board of Directors may recommend.
In accordance with resolutions adopted by the Board of Directors, and
under the terms of the Fund's Articles of Amendment and Restatement (the
"Articles of Incorporation") and the Fund's By-laws, as amended, the holders of
the Fund's Common Stock are to elect seven Directors of the Fund.
The nominees for election to the Board of Directors are as follows:
<TABLE>
<CAPTION>
Number of
Shares of
Common Stock
Beneficially
Owned at
Positions Director December 29,
Name with Fund Age Since 1998 (1)(2)
---- --------- --- ----- -----------
Common Stock Nominees
- ---------------------
<S> <C> <C> <C> <C>
Richard E. Omohundro, Jr.* President and 58 November, 1988 1,000 (3)
Director
John A. Frabotta* Vice President, 56 November, 1988 2,769 (3)
Treasurer, and
Director
John S. Albanese Director 48 November, 1989 -0-
C. William Carey Director 61 November, 1988 9,012
Joseph G. Cote* Director 56 November, 1988
through
November, 1993;
March, 1996 -0- (3)
Harlan D. Platt Director 48 November, 1988 -0- (4)
Christopher E. Roshier Director 52 November, 1993 -0-
- -----------------
</TABLE>
-5-
<PAGE>
*These Directors are deemed to be "interested persons" of the Fund
under the 1940 Act. Messrs. Omohundro and Cote are Co-Presidents of the Manager.
Mr. Frabotta is a Vice President of the Manager.
1. The amounts shown are based on information furnished by the nominee. Except
as otherwise indicated, each person has sole voting and investment power
with respect to the shares indicated. Fractional shares are rounded off to
the nearest whole share.
2. No Director is the beneficial owner of more than 1% of the Common Stock
outstanding.
3. Does not include an additional 80,072 shares of Common Stock owned by the
Manager.
4. Does not include 2,372 shares of Common Stock owned by Mr. Platt's wife, as
to which Mr. Platt disclaims beneficial ownership.
As of December 29, 1998, all of the officers and Directors of the Fund,
including the Manager, as a group beneficially owned ________ shares of Common
Stock, or less than 1% of the outstanding shares of Common Stock.
COMMON STOCK NOMINEES
Richard E. Omohundro, Jr. has been President or Co-President of the
Manager since July 1988 and has been President of the Fund since its inception.
Previously he was a Managing Director of Merrill Lynch from 1983 to 1988 and
Co-Manager of the Merrill Lynch High Yield Bond Group from 1978 through 1987.
Mr. Omohundro is also Co-President and Chief Executive Officer of Prospect
Street Senior Loan Management Co., Inc.
John A. Frabotta has been Vice President of the Manager since June
1988, Co-Portfolio Manager of the Fund since October 1989 and Portfolio Manager
since October 1990. Previously, Mr. Frabotta was a Vice President of Merrill
Lynch Pierce Fenner & Smith ("Merrill Lynch") from 1979 through June 1988.
John S. Albanese has been Senior Counsel to Washington Headquarters
Services, a Department of Defense Agency located at the Pentagon since 1992. A
Lieutenant Colonel in the United States Army Reserve, he served on active duty
from 1977 until 1992 in various positions such as: Attorney-Adviser and
Litigation Attorney in the Office of the Judge Advocate General; Legal Counsel
to the U.S. Army Information Systems Selection and Acquisition Agency; and Legal
Adviser to the Defense Attache for the American Embassy in Paris, France.
C. William Carey has been Chairman and Chief Executive Officer of Town
& Country Corporation since 1965.
Joseph G. Cote has been a shareholder of the Manager since 1989.
Previously, he was Co-President of the Manager from August 1995 to February 1998
and from February 1989 to November 1993. From 1978 to 1988, Mr. Cote was a
Managing Director of Merrill Lynch and Co-Manager of the Merrill Lynch High
Yield Bond Group.
-6-
<PAGE>
Harlan D. Platt is a Professor of Finance and Insurance, and has been
at Northeastern University, College of Business Administration, since 1981.
Christopher E. Roshier, a citizen of the United Kingdom, has been a
Corporate Finance Director of European Capital Company Limited in London since
1990 and is a Director of a number of other public and private companies in the
U.K.
During the fiscal year ended October 31, 1998, the Directors of the
Fund met five times in person and four times by telephone. During such year each
incumbent Director (either in person or by telephone) attended all of the
meetings of the Board. The Board of Directors has one committee, the Audit
Committee. The Audit Committee is responsible for conferring with the Fund's
independent accountants, reviewing the scope and procedures of the year-end
audit, reviewing annual financial statements and recommending the selection of
the Fund's independent accountants. In addition, the Audit Committee may address
questions arising with respect to the valuation of certain securities in the
Fund's portfolio. The Audit Committee is comprised of Messrs. Carey, Albanese
and Platt. The Audit Committee met once in fiscal 1998.
REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS
The executive officers of the Fund and those of its Directors who are
"interested persons" of the Fund receive no direct remuneration from the Fund.
Those Directors who are not interested persons are compensated at the
rate of $10,000 annually, plus $2,000 per Directors' meeting attended in person
or $1,000 per Directors' meeting attended by telephone, and are reimbursed for
actual out-of-pocket expenses relating to attendance at such meetings. In
addition, the members of the Fund's Audit Committee, which consists of certain
of the Fund's non-interested Directors, receive $1,000 for each Audit Committee
meeting attended, together with actual out-of-pocket expenses relating to
attendance at such meetings. During the fiscal year ended October 31, 1998,
Directors who were not interested persons of the Fund earned fees aggregating
$91,000.
The following table summarizes the compensation paid to the Directors
and Officers of the Fund for the fiscal year ended October 31, 1998.
-7-
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated
Name of Aggregate Accrued as Annual Total
Director Compensation Part of Fund Benefits Upon Compensation
or Officer from Fund Expenses Retirement from Fund
- ---------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Richard E. Omohundro, Jr. none none none none
Harlan D. Platt $24,000 none none $24,000
C. William Carey $23,000 none none $23,000
Christopher E. Roshier $21,000 none none $21,000
John S. Albanese $23,000 none none $23,000
John A. Frabotta none none none none
Joseph G. Cote none none none none
</TABLE>
SHARE OWNERSHIP AND CERTAIN BENEFICIAL OWNERS
As far as is known to the Fund, no person owned beneficially five
percent or more of the outstanding shares of Common Stock of the Fund on
December 29, 1998. The Depository Trust Company ("DTC") holds of record 90% of
the outstanding shares of Common Stock. As far as is known to the Fund, no
person other than DTC, owned of record or beneficially, shares of the Fund
representing more than five percent of the voting power of the Fund's
outstanding shares. The Manager of the Fund beneficially owns ______ shares of
Common Stock.
REQUIRED VOTE
The election of each of the nominees for Director requires the
affirmative vote of the holders of a plurality of the common stock of the Fund
present and voting at the Annual Meeting. Pursuant to the Articles of
Incorporation, holders of the Common Stock have voting rights of one vote per
share. Abstentions will not be counted as votes cast and will have no effect on
the result of the vote, although abstentions will count towards the presence of
a quorum. Under the Articles of Incorporation and the 1940 Act, the holders of
the Common Stock are entitled to elect seven Directors (at least four of whom
are not "interested persons" as defined in the 1940 Act).
The Board of Directors recommends that stockholders vote FOR the
election of the seven nominees to the Fund's Board of Directors.
-8-
<PAGE>
PROPOSAL 2
APPROVAL OF NEW ADVISORY AGREEMENT
DESCRIPTION OF PROPOSED NEW ADVISORY AGREEMENT
In late November 1998, the Manager requested an increase in the
advisory fee and the Board members reviewed various factors pertaining to such
request. Accordingly, on December 14, 1998, the Noninterested Directors and the
full Board of Directors, further considered all of the information presented by
the Adviser and approved (subject to stockholder approval) a new Advisory
Agreement under which the annual fee payable monthly to the Manager would be
increased to 0.70% (on an annual basis) of the average weekly value of the total
assets of the Fund ("Managed Assets"), less accrued and unpaid dividends on any
outstanding shares of preferred stock and less accrued liabilities (excluding
the principal amount of the Fund's "senior securities representing indebtedness"
as defined in the 1940 Act, not to exceed $75 million (the "Principal Debt
Exclusion"), and excluding the liquidation preference of any outstanding shares
of preferred stock or other senior securities) up to and including $200,000,000
of such managed assets and an annual rate of 0.65% of the excess of such managed
assets over $200,000,000. Currently, the Principal Debt Exclusion is $50 million
and the Manager receives a monthly advisory fee equal to 0.65% up to and
including $175,000,000 of managed assets, 0.55% on the next $50,000,000 of
managed assets and 0.50% of the excess of managed assets over $225,000,000. As
so calculated, such Managed Assets are hereinafter referred to as the "average
net assets" of the Fund.
There are no other changes being proposed to be made in the existing
Advisory Agreement and accordingly the new Agreement will otherwise be virtually
identical to the existing one. The proposed $25 million increase in the
Principal Debt Exclusion will have no immediate effect on the actual advisory
fee since the maximum amount of senior indebtedness under an existing revolving
credit agreement is currently $50 million, of which $40 million is outstanding.
In requesting a fee increase, the Manager referred the Board to, among
other things, the increasing research and analysis burden resulting from the
growth of the high yield market from $250 Billion on January 1, 1994 to
approximately $600 Billion as of June 30, 1998, and the increased administrative
costs and increased complexity of administering the Fund. According to "1998
Leveraged Finance Annual Review" of Donaldson, Lufkin & Jenrette, Inc., the
"high-yield" new issue market has increased from approximately $50 Billion in
calendar 1993 to $126 Billion in 1997.
According to current information derived by the Manager from Lipper
Analytical Services regarding closed-end investment companies, the current
advisory fee is lower than
-9-
<PAGE>
the average charged by other leveraged closed-end funds which invest primarily
in high yield securities as does the Fund. The proposed fee will be closer to
the approximate 0.71% average of the Fund's peer group.
The table below compares actual fees incurred under the existing
Advisory Agreement with the fees that would have been payable under the proposed
Agreement during the last fiscal year of the Fund.
<TABLE>
<CAPTION>
Advisory Fees Fees Payable Under
Actually the Proposed
Year Ended Incurred(a) Agreement (b) $Change(c) %Change
---------- ----------- ------------- ---------- -------
<S> <C> <C> <C> <C>
October 31, 1998 $1,582,842 $1,783,945 $201,103 12.7%
</TABLE>
- ---------------
(a) Calculated pursuant to the present fee schedule as described above.
(b) Calculated pursuant to the proposed fee schedule as described above.
(c) Equals the difference between fees payable under the proposed Agreement and
advisory fees actually incurred.
COMPARATIVE FEE TABLE
The table below compares the ratio of management fee, other expenses
and total operating expenses to the average net assets of the Fund with respect
to the current fee and proposed fee. The table assumes average net assets for
the Fund of $225,000,000 and senior borrowing of $40,000,000:
Annual Fund Operating
Expenses
(as a percentage of average
net assets) Current Fee Proposed Fee
----------- ------------
Management Fee 0.61% 0.69%
Interest Payments on
Borrowed Funds 0.96% 0.96%
Other Expenses 0.64% 0.64%
---- ----
Total Fund Operating
Expenses 2.11% 2.19%
---- ----
-10-
<PAGE>
The following example illustrates the expenses on a $1,000 investment
under the existing and proposed fee schedule, and the total Fund operating
expenses stated above, assuming (1) a 5% annual return and (2) $225,000,000 of
average net assets in the Fund upon which the advisory fee is calculated.
Aggregate Fee 1 year 3 years 5 years 10 years
Existing $22 $68 $117 $251
Proposed $23 $71 $121 $260
The purpose of this example and the foregoing Comparative Fee Table is
to assist investors in understanding the various costs and expenses of investing
in shares of the Fund. The example above should not be considered a
representation of past or future expenses of the Fund. Actual expenses may vary
from year to year and may be higher or lower than those shown above.
The Fund's audited ratio of operating expenses (exclusive of interest)
to average net assets for the year ended October 31, 1998 was 1.20% and if the
proposed Agreement had been in effect such ratio would have been 1.28%. The
audited ratio of operating expenses (inclusive of interest) to average net
assets for the year ended October 31, 1998 was 2.18% and if the proposed
Agreement had been in effect such ratio would have been 2.26%. The average ratio
of operating expenses (inclusive of interest) to average net assets of all other
leveraged "high yield" closed-end funds was 2.04% during the last fiscal year of
such funds according to information derived by the Manager from Lipper
Analytical Services, Inc.
The Board of Directors has determined that the compensation to be paid
to the Manager under the proposed Agreement is fair and reasonable. In approving
the proposed Agreement and recommending its approval by stockholders, the
Directors of the Fund, including the Noninterested Directors, considered the
best interests of stockholders of the Fund and took into account all such
factors they deemed relevant. The factors considered by the Noninterested
Directors included the nature, quality and extent of the services furnished by
the Manager to the Fund since its inception, and particularly the last five
fiscal years; the necessity of the Manager maintaining and enhancing its ability
to retain and attract capable personnel to serve the Fund; the experience of the
Manager in "high-yield" investing and particularly in managing the Fund; the
effect of the proposed investment advisory fee increase on the expense ratio of
the Fund; comparative data as to investment performance, advisory fees and
expense ratios, particularly fee and expense ratios of funds with similar
investment objectives; the advantages and possible disadvantages to the Fund of
having an adviser which does not currently serve other investment companies; the
continuance of appropriate incentives to assure that the Manager will continue
to furnish high quality services to the Fund; and the advisability of modifying
the current tiered fee structure under which the fee would be reduced upon
reaching certain asset levels.
-11-
<PAGE>
Until such time as the new Advisory Agreement has been approved by
stockholders, the fee payable to the Manager will continue as described above.
The present Advisory Agreement will continue in effect until February 28, 2000
if this Proposal No.2 is not adopted. The present Advisory agreement was last
approved by the Directors on December 14, 1998 and by the stockholders on March
1, 1994. In the event of the approval of the proposed new Agreement by the
stockholders, such new Agreement will be effective on March 12, 1999 and will
have a two-year term expiring on March 11, 2001.
The Board of Directors recommends that stockholders vote FOR approval
of the New Advisory Agreement.
Under both the existing and the proposed Advisory Agreements the Fund
bears all costs of its operation other than those incurred by the Manager under
the Advisory Agreement. In particular, the Fund pays investment advisory fees,
fees and expenses associated with the Fund's administration, record keeping and
accounting, fees and expenses for the custodian of the Fund's assets and the
legal, accounting and auditing fees, taxes, expenses of preparing prospectuses
and shareholder reports, registration fees and expenses, fees and expenses for
the transfer and dividend disbursing agent, the compensation and expenses of the
Directors who are not otherwise employed by or affiliated with the Manager or
any of its affiliates, and any extraordinary expenses. The Manager will
reimburse the Fund for any expenses (excluding brokerage commissions, interest,
taxes and litigation expenses) paid or incurred by the Fund in any year in
excess of the most restrictive expense limitation, which is imposed by any state
and to which the Fund is then subject, if any. The Fund is not known to be
subject to any state expense limitations. Under both Advisory Agreements, the
Manager provides the Fund with office space, facilities and business equipment
and provides the services of executive and clerical personnel for administering
certain of the other affairs of the Fund. The Manager compensates Directors of
the Fund if such persons are employed by the Manager or its affiliates.
The proposed Advisory Agreement will remain in effect until March 11,
2001 and will continue in effect from year to year (as would the existing
Agreement) as long as it is approved at least annually (i) by either the Board
of Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) and (ii) in either case by a
majority of the Directors of the Fund who are not parties to the Advisory
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. Either the current or the
proposed Advisory Agreement may be terminated at any time, without payment of
any penalty, by vote of the Board of Directors, by vote of the majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act and as
further described below), or by the Manager, in each case on not more than sixty
(60) days' nor less than thirty (30) days' prior written notice, and will
terminate automatically in the event of its assignment.
-12-
<PAGE>
Under the 1940 Act, approval of the new Advisory Agreement (this
Proposal No. 2) will require a vote of a majority of the outstanding voting
securities of the Fund (currently only Common Stock), which means the lesser of
either (a) the vote of 67% or more of the shares of the applicable class or
classes present at the relevant meeting, if the holders of more than 50% of the
outstanding shares of the applicable class or classes are present or represented
by proxy, or (b) the vote of more than 50% of the outstanding shares of the
applicable class or classes. Under applicable Maryland law, in determining
whether this Proposal No. 2 has received the requisite number of affirmative
votes, abstentions and broker non-votes will not be counted and thus will have
the effect of a vote against such proposals.
Based upon information furnished by the Manager, the Board of Directors
is not aware of any financial condition of the Manager which is reasonably
likely to impair its ability to perform its commitments under the New Advisory
Agreement.
The Manager is registered under the Investment Advisers Act of 1940.
The following table sets forth the name, title and principal occupation of each
director and executive officer of the Manager.
Name and Address Title Principal Occupation
---------------- ----- --------------------
Richard E. Omohundro, Jr.* Co-President President of the Fund, President
60 State Street of the Manager, and Co-President
Boston, MA 02109 and Chief Executive Officer of
Prospect Street Strategic Debt
Management Co., Inc.
Joseph G. Cote* Co-President Shareholder of Manager and
19 Mallard Drive former Co-President of Manager
Lloyd Harbor, NY 11743 and certain affiliates.
Karen J. Thelen Vice President Secretary of the Fund and Vice
60 State Street President of the Manager.
Boston, MA 02109
John A. Frabotta* Vice President Vice President, Treasurer, Chief
60 State Street Investment Officer and Portfolio
Boston, MA 02109 Manager of the Fund and Vice
President and Secretary of the
Manager.
William O'Connell Controller Controller of the Manager and an
60 State Street officer of various companies
Boston, MA 02109 affiliated with the Manager.
-13-
<PAGE>
- ------------------------------
* Messrs. Omohundro, Cote and Frabotta are the controlling shareholders of the
Manager and may be deemed to be the "Parents" (as such term is defined in Item
22 of Rule 14a-101 of the Securities Exchange Act of 1934, as amended) of the
Manager.
On November 1, 1998, the Fund's portfolio manager, John A. Frabotta, a
Director of the Fund, purchased an additional 13.33% of the Manager's capital
stock to bring his ownership of the Manager to 331/3%. The shares were sold for
$20,000 pursuant to a promissory note payable on December 31, 2002, bearing
interest at 6% per annum.
The Fund did not effect any transactions through affiliated brokerage
firms during the fiscal year ended October 31, 1998.
If adopted, the New Advisory Agreement will be similar to the existing
advisory agreement, except that Section 4 of the Advisory Agreement will read in
its entirety as follows:
"ADVISORY FEE
For the services and facilities to be provided by the Manager as set
forth in paragraph 2 hereof, the Fund will pay to the Manager as full
compensation therefor a fee at an annual rate of 0.70% of the Fund's
net assets up to and including $200 million and (b) 0.65% of the excess
of such managed assets over $200,000,000. For purposes hereof, net
assets shall mean (a) the average weekly value of the total assets of
the Fund, minus (b)(i) accrued liabilities of the fund (other than the
principal amount of the Fund's "senior securities representing
indebtedness" (as defined in the 1940 Act), not to exceed $75 million,
and not including the aggregate liquidation preference of any preferred
stock or other senior securities issued in lieu thereof (the "Preferred
Stock")) and (ii) accumulated and unpaid dividends on the Preferred
Stock. The fee to the Manager will be computed weekly and will be paid
to the Manager monthly as soon as practicable following the end of each
month.
In the case of the commencement or termination of this Agreement during
any month, the fee with respect to such month shall be adjusted
proportionately."
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC
ACCOUNTANTS
The Board of Directors has selected the firm of Arthur Andersen LLP as
independent public accountants for the Fund for the fiscal year ending October
31, 1999. In accordance
-14-
<PAGE>
with the 1940 Act, the employment of such accountants is conditioned upon the
right of a majority of the outstanding voting securities as defined above to
terminate such employment. Stockholders are being asked to ratify the selection
of Arthur Andersen LLP to perform audit services for the Fund.
Arthur Andersen LLP has acted as independent public accountants for the
Fund since inception. The services provided by Arthur Andersen LLP consist of
(1) examination and audit of the Fund's semi-annual and annual financial
statements, (2) assistance and consultation in connection with Securities and
Exchange Commission filings and (3) review of tax matters on behalf of the Fund.
A representative of Arthur Andersen LLP is not expected to be
represented at the Annual Meeting but a representative of that firm will be
available by telephone to respond to appropriate questions.
REQUIRED VOTE
Approval of the foregoing proposal requires the affirmative vote of the
holders of a majority of the Common Stock present and voting at the meeting.
Abstentions will not be counted as votes cast and will have no effect on the
result of the vote, although abstentions will count towards the presence of a
quorum.
The Board of Directors, including those Directors who are not
interested persons of the Fund, recommends a vote FOR ratification of the
selection of Arthur Andersen LLP as independent public accountants of the Fund
for the fiscal year ending October 31, 1999.
ANNUAL REPORT
All stockholders of record as of December 29, 1998, have been furnished
or are concurrently herewith being furnished with, a copy of the Fund's Annual
Report for the fiscal year ended October 31, 1998, which contains certified
financial statements of the Fund for the fiscal year ended October 31, 1998. The
Fund will furnish, without charge, a copy of the Annual Report to a shareholder
upon request.
OTHER MATTERS TO COME BEFORE THE MEETING
The Directors do not intend to present any other business at the Annual
Meeting nor are they aware that any stockholder intends to do so. If, however,
any other matters are properly brought before the Annual Meeting, the persons
named in the accompanying proxy will vote thereon in accordance with their
judgment.
-15-
<PAGE>
STOCKHOLDER PROPOSALS
Any proposals of stockholders that are intended to be presented at the
Fund's 1999 Annual Meeting of Stockholders must be received at the Fund's
principal executive offices no later than August 31, 1999 and must comply with
all other legal requirements in order to be included in the Fund's proxy
statement and form of proxy for that meeting.
On May 21, 1998 the Securities and Exchange Commission adopted an
amendment to Rule 14a-4, as promulgated under the Securities and Exchange Act of
1934, as amended. The amendment to Rule 14a-4 (c) (1) governs the Fund's use of
its discretionary proxy voting authority with respect to a stockholder proposal
which is not addressed in the Fund's proxy statement. The new amendment provides
that if a proponent of a proposal fails to notify the Fund at least 45 days
prior to the month and day of mailing of the prior year's proxy statement, then
the Fund will be allowed to use its discretionary voting authority when the
proposal is raised at the meeting, without any discussion of the matter in the
proxy statement.
With respect to the Fund's 1999 Annual Meeting of Stockholders, if the
Fund is not provided notice of a stockholder proposal, which the stockholder has
not previously sought to include in the Fund's proxy statement by November 22,
1999, the Fund will be allowed to use its voting authority as outlined above.
By Order of the Board of Directors
President
Boston, Massachusetts
January 6, 1999
-16-
<PAGE>
PROSPECT STREET HIGH INCOME PORTFOLIO INC.
Annual Meeting of Stockholders - March 12, 1999 -
Proxy Solicited on Behalf of Board of Directors
The undersigned holder of shares of Common Stock of Prospect Street
High Income Portfolio Inc., a Maryland corporation (the "Fund"), hereby appoints
Richard E. Omohundro, Jr. and John A. Frabotta, and each of them, with full
power of substitution and revocation, as proxies to represent the undersigned at
the Annual Meeting of Stockholders of the Fund to be held at 60 State Street,
37th Floor, Boston, Massachusetts 02109, on March 12, 1999 at 10:00 a.m., and at
any and all adjournments thereof, and thereat to vote all shares of Common Stock
of the Fund which the undersigned would be entitled to vote, with all powers the
undersigned would possess if personally present, in accordance with the
instructions on this proxy.
Please mark the boxes in blue or black ink.
1. GRANTING /_/ WITHHOLDING /_/ authority to vote for the election as Directors
of all the nominees listed below:
Richard E. Omohundro, Jr., John A. Frabotta, John S. Albanese, C. William Carey,
Harlan D. Platt, Christopher E. Roshier and Joseph G. Cote
- ---------------------------------------------------------------------
(Instructions: To withhold authority to vote for any individual nominee, write
such nominee's name in the space provided above.)
2. With respect to the proposal to approve a new Advisory Agreement which will
increase the annual advisory fee to 0.70% of the Fund's average annual net
assets up to and including $200,000,000 and 0.65% of the excess of such managed
assets over $200,000,000.
FOR /_/ AGAINST /_/ ABSTAIN /_/
3. With respect to the proposal to ratify the selection of Arthur Andersen LLP
as independent public accountants of the Fund for the fiscal year ending October
31, 1999.
FOR /_/ AGAINST /_/ ABSTAIN /_/
-17-
<PAGE>
4. In their discretion, on such other matters as may properly come before the
meeting and any adjournment thereof.
Dated:____________________, 1999
------------------------
Signature
------------------------
Signature
Please sign exactly as name or
names appear on this proxy. If
stock is held jointly, each
holder should sign. If signing
as attorney, trustee, executor,
administrator, custodian,
guardian or corporate officer,
please give full title.
WHEN THIS PROXY IS PROPERLY EXECUTED, THE SHARES REPRESENTED HEREBY WILL BE
VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF ALL NOMINEES AS DIRECTORS, THE APPROVAL OF THE NEW ADVISORY
AGREEMENT, FOR THE RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT PUBLIC
ACCOUNTANTS AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO ALL OTHER
MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENT THEREOF.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE ACCOMPANYING NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT.
-18-
