Registration
Nos. 33-
56408
and 811-7396
_________________________________________________________________
_____________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
Pre-Effective Amendment No. __
Post-Effective Amendment No. 2
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
X
Amendment No. 4
X
(Check appropriate box or boxes)
MANAGED HIGH INCOME PORTFOLIO INC.
Exact name of registrant as specified in its charter
388 Greenwich Street
New York, New York 10013
Address of principal executive offices
Registrant's Telephone Number, including Area Code: (212) 723-
9218
HEATH B. MCLENDON
Chairman of the Board
Managed High Income Portfolio Inc.
388 Greenwich Street
New York, New York 10013
Name and address of agent for service
Approximate date of proposed public offering:
As soon as practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, check the following box.
X
This Registration Statement relates to the registration of
an inderminate number of shares solely for market-making
transactions. Pursuant to Rule 429, this Registration Statement
relates to shares previously registered on Form N-2 (Registration
No. 33-56408).
It is proposed that this filing will become effective
pursuant to Section 8(c).
The Registrant amends this Registration Statement under the
Securities Act of 1933 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 the provisions of Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
MANAGED HIGH INCOME PORTFOLIO INC.
FORM N-2
Cross Reference Sheet
Part A.
Item No. Caption Prospectus Caption
1 Outside Front Cover Outside Front Cover
of Prospectus
2 Inside Front and
Outside Back Cover
Page Inside Front and
Outside Back
Cover Page of
Prospectus
3 Fee Table and Synopsis Prospectus Summary;
Portfolio
Expenses
4 Financial Highlights Financial Highlights
5 Plan of Distribution Prospectus Summary;
The
Offering; Stock
Purchases
and Tenders
6 Selling Shareholders Not Applicable
7 Use of Proceeds Use of Proceeds
8 General Description of the
Registrant Prospectus Summary;
The
Portfolio;
Investment Objectives
and Policies;
Description of
Common Stock; Share
Price
Data; Net Asset
Value;
Certain Provisions
of the
Articles of
Incorporation;
Appendix A
9 Management Management of the
Portfolio;
Description of
Common Stock;
Custodian, Transfer
Agent,
Dividend-Paying
Agent and
Registrar
10 Capital Stock, Long-Term
Debt and Other
Securities Dividends and
Distributions;
Dividend
Reinvestment Plan;
Taxation;
Description of Common
Stock; Net Asset
Value
11 Defaults and Arrears on
Senior Securities Not Applicable
12 Legal Proceedings Not Applicable
13 Table of Contents of the
Statement of Additional
Information Further Information
Part B. Statement of
Item No. Caption Additional
Information
14 Cover Page Cover Page of
Statement of
Additional
Information
15 Table of Contents Cover Page of
Statement of
Additional
Information
16 General Information
and History The Portfolio (in
Prospectus)
17 Investment Objectives
and Policies InvestmentObjectives
and Policies;
Investment
Objectives and Policies
(in Prospectus)
18 Management Management of the
Portfolio;
Directors and
Executive Officers
of the Portfolio
19 Control Persons and
Principal Holders of
Securities Not Applicable
20 Investment Advisory
and Other Services Investment
Adviser;Administrator;
Management of the
Portfolio
21 Brokerage Allocation and
Other Practices Portfolio
Transactions and
Turnover; Management
of the
Portfolio
22 Tax Status Taxes; Taxation (in
Prospectus)
23 Financial Statements Financial
Statements; Report of
Independent
Accountants
SMITH BARNEY
------------
A Member of
TravelersGroup [LOGO]
Managed
High
Income
Portfolio
Inc.
Common Stock
388 Greenwich
Street
New York, New York
10013
FDO 1148 6/96
<PAGE>
Managed High Income Portfolio Inc.
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Prospectus
June 27, 1996
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388 Greenwich Street
New York, New York 10013
(212) 723-9218
Managed High Income Portfolio Inc. (the "Portfolio") is a
diversified,
closed-end management investment company whose primary investment
objective is
high current income. Capital appreciation is a secondary
objective. The
Portfolio will seek to achieve its investment objectives by
investing, under
normal circumstances, at least 65% of its assets in high-yielding
corporate
bonds, debentures and notes. For a description of the risks
involved in
investing in high-yield securities, see "Investment Objectives
and Policies --
Risk Factors and Special Considerations." The Portfolio's address
is 388
Greenwich Street, New York, New York 10013 and the Portfolio's
telephone number
is (212) 723-9218.
The Portfolio seeks to invest substantially all of its
assets in
high-yielding corporate bonds, debentures and notes. Up to 35% of
its assets may
be invested in common stock or other equity or equity-related
securities,
including convertible securities, preferred stock, warrants and
rights.
Securities purchased by the Portfolio generally will be rated in
the lower
rating categories of recognized rating agencies, as low as C by
Moody's
Investors Service, Inc. ("Moody's") or D by Standard & Poor's
Ratings Group
("S&P"), or in unrated securities that the Portfolio's investment
adviser deems
to be of comparable quality. See "Investment Objectives and
Policies."
This Prospectus is to be used by Smith Barney Inc. ("Smith
Barney") in
connection with offers and sales of the Portfolio's Common Stock
(the "Common
Stock") in market-making activities in the over-the-counter
market at negotiated
prices related to prevailing market prices at the time of the
sale. The Common
Stock is listed on the New York Stock Exchange, Inc. (the "NYSE")
under the
symbol "MHY."
Smith Barney intends to make a market in the Common Stock.
Management 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.
The
(Continued on page 2)
SMITH BARNEY INC.
Distributor
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
Managed High Income Portfolio Inc.
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Prospectus (continued)
June 27, 1996
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shares of Common Stock that may be offered from time to time
pursuant to the
Prospectus were issued and sold by the Portfolio in a public
offering which
commenced March 18, 1993, at a price of $12.00 per share. No
assurance can be
given as to liquidity of, or the trading market for, the Common
Stock as a
result of any market-making activities undertaken by Smith
Barney. The Portfolio
will not receive any proceeds from the sale of any Common Stock
offered pursuant
to this Prospectus.
Investors are advised to read this Prospectus, which sets
forth concisely
the information about the Portfolio that a prospective investor
ought to know
before investing, and to retain it for future reference. A
statement of
additional information ("SAI") dated June 27, 1996 has been filed
with the
Securities and Exchange Commission ("SEC") and is incorporated by
reference in
its entirety into this Prospectus. A copy of the SAI can be
obtained without
charge by calling or writing to the Portfolio at the telephone
number or address
set forth above or by contacting any Smith Barney Financial
Consultant.
2
<PAGE>
Managed High Income Portfolio Inc.
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Table of Contents
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Prospectus Summary
4
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Portfolio Expenses
8
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Financial Highlights
9
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The Portfolio
10
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The Offering
10
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Use of Proceeds
10
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Investment Objectives and Policies
10
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Investment Restrictions
24
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Share Price Data
24
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Management of the Portfolio
25
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Dividends and Distributions; Dividend Reinvestment Plan
27
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Net Asset Value
29
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Taxation
30
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Description of Common Stock
33
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Stock Purchases and Tenders
33
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Certain Provisions of the Articles of Incorporation
34
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Custodian, Transfer Agent and
Dividend-Paying Agent and Registrar
35
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Further Information
35
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Appendix A
A-1
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3
<PAGE>
Managed High Income Portfolio Inc.
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Prospectus Summary
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The following summary is qualified in its entirety by the
more detailed
information appearing elsewhere in this Prospectus and in the
SAI.
THE PORTFOLIO The Portfolio is a diversified, closed-end
management investment
company. See "The Portfolio."
Investment Objectives The Portfolio seeks high current income.
Capital
appreciation is a secondary objective. See "Investment Objectives
and Policies."
Investments The Portfolio will seek to achieve its investment
objectives by
investing, under normal circumstances, at least 65% of its assets
in
high-yielding corporate bonds, debentures and notes. Up to 35% of
its assets may
be invested in common stock or other equity or equity-related
securities,
including convertible securities, preferred stock, warrants and
rights. Although
the Portfolio may invest in securities of any maturity, under
current market
conditions, the Portfolio intends that its portfolio of fixed-
income securities
will have an average remaining maturity of between 5 and 10
years. Securities
purchased by the Portfolio generally will be rated in the lower
rating
categories of recognized rating agencies, as low as C by Moody's
or D by S&P, or
in unrated securities that the Portfolio's investment adviser
deems to be of
comparable quality. However, the Portfolio will not purchase
securities rated
lower than B by both Moody's and S&P if, immediately after such
purchase, more
than 10% of its total assets are invested in such securities. The
Portfolio may
invest up to 20% of its assets in the securities of foreign
issuers that are
denominated in currencies other than the U.S. dollar and may
invest without
limitation in securities of foreign issuers that are denominated
in U.S.
dollars. There is no guarantee that the Portfolio's investment
objectives will
be achieved. See "Investment Objectives and Policies" and
Appendix A.
The Offering Smith Barney intends to make a market in the Common
Stock in
addition to trading the Common Stock on the NYSE. Smith Barney,
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.
Listing NYSE.
Symbol MHY.
Investment Adviser The Fund has entered into an investment
advisory agreement
with a division of Mutual Management Corp., which has been
transferred effective
November 7, 1994 to Smith Barney Mutual Funds Management Inc.
("SBMFM"). Mutual
Management Corp. and SBMFM are both
4
<PAGE>
Managed High Income Portfolio Inc.
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Prospectus Summary (continued)
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wholly-owned subsidiaries of Smith Barney Holdings Inc.
("Holdings") which in
turn is a wholly owned subsidiary of Travelers Group Inc.
("Travelers"), a
diversified financial services holding company engaged through
its subsidiaries
principally in four business segments: Investment Services,
Consumer Finance
Services, Life Insurance Services and Property & Casualty
Insurance Services.
SBMFM renders investment advice to a wide variety of individual
and
institutional clients that had aggregate assets under management,
as of May 31,
1996, in excess of $75 billion. The Portfolio pays SBMFM a fee
for services
provided to the Portfolio that is computed daily and paid monthly
at the annual
rate of 0.90% of the value of the Portfolio's average daily net
assets. See
"Management of the Portfolio -- Investment Adviser and
Administrator."
Administrator SBMFM also serves as the Portfolio's administrator.
The Portfolio
pays SBMFM a fee for administration services provided to the
Portfolio that is
computed daily and paid monthly at the annual rate of 0.20% of
the value of the
Portfolio's average daily net assets. See "Management of the
Portfolio --
Investment Adviser and Administrator."
Custodian, Transfer Agent and Dividend-Paying Agent and Registrar
PNC Bank,
National Association ("PNC"), serves as the Portfolio's
custodian. First Data
Investor Services Group, Inc. (the "Transfer Agent"), formerly
The Shareholder
Services Group, Inc., serves as the Portfolio's transfer agent,
dividend-paying
agent and registrar. See "Custodian, Transfer Agent and Dividend-
Paying Agent
and Registrar."
Dividends and Distributions; Dividend Reinvestment Plan The
Portfolio expects to
pay monthly dividends of net investment income (that is, income
other than net
realized capital gains) and to distribute net realized capital
gains, if any,
annually. All dividends or distributions will be reinvested
automatically in
additional shares through participation in the Portfolio's
Dividend Reinvestment
Plan, unless a shareholder elects to receive cash. See "Dividends
and
Distributions; Dividend Reinvestment Plan."
Discount from Net Asset Value The shares of closed-end investment
companies
often, although not always, trade at a discount from their net
asset value.
Whether investors will realize gains or losses upon the sale of
Common Stock
will not depend upon the Portfolio's net asset value, but will
depend entirely
on whether the market price of the Common Stock at the time of
sale is above or
below the original purchase price of the shares. Since the market
price of the
Common Stock will be determined by factors such as relative
demand for and
supply of such shares
5
<PAGE>
Managed High Income Portfolio Inc.
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Prospectus Summary (continued)
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in the market, general market and economic conditions and other
factors beyond
the control of the Portfolio, the Portfolio cannot predict
whether the Common
Stock will continue to trade at, below or above net asset value.
For that
reason, shares of the Portfolio's Common Stock are designed
primarily for
long-term investors, and investors in the Portfolio's Common
Stock should not
view the Portfolio as a vehicle for trading purposes. See
"Investment Objectives
and Policies -- Risk Factors and Special Considerations" and
"Share Price Data."
Risk Factors and Special Considerations The Portfolio is a
closed-end
investment company that is designed primarily for long-term
investors and not as
a trading vehicle. The net asset value of the Common Stock will
change with
changes in the value of the securities held by the Portfolio.
Because the
Portfolio will invest primarily in fixed-income securities, the
net asset value
of the Common Stock can be expected to change as levels of
interest rates
fluctuate; generally, when prevailing interest rates increase,
the value of
fixed-income securities held by the Portfolio can be expected to
decrease and
when prevailing interest rates decrease, the value of the fixed-
income
securities held by the Portfolio can be expected to increase. The
value of the
fixed-income securities held by the Portfolio, and thus the
Portfolio's net
asset value, may also be affected by other economic, market and
credit factors.
See "Investment Objectives and Policies -- Risk Factors and
Special
Considerations."
The Portfolio will invest in medium- or low-rated securities
and unrated
securities of comparable quality. Generally, these securities
offer a higher
return potential than higher-rated securities but involve greater
volatility of
price and risk of loss of income and principal including the
possibility of
default or bankruptcy of the issuers of such securities. Medium-
and low-rated
and comparable unrated securities will likely have large
uncertainties or major
risk exposures to adverse conditions and are predominantly
speculative with
respect to the issuer's capacity to pay interest and repay
principal in
accordance with the terms of the obligations. Up to 10% of the
Portfolio's
assets may be invested in securities rated lower than B by both
Moody's and S&P,
including bonds rated as low as C by Moody's or D by S&P. These
bonds can be
regarded as having extremely poor prospects of ever attaining any
real
investment standing and may be in default. Accordingly, it is
possible that
these types of factors could, in certain instances, reduce the
value of
securities held by the Portfolio, with a commensurate effect on
the value of the
Portfolio's shares. See "Investment Objectives and Management
Policies -- Risk
Factors and Special Considerations" and Appendix A.
Certain of the instruments held by the Portfolio, and
certain of the
investment techniques that the Portfolio may employ, might expose
the Portfolio
to special risks. The instruments presenting the Portfolio with
risks are
medium-, low- and
6
<PAGE>
Managed High Income Portfolio Inc.
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Prospectus Summary (continued)
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unrated securities, convertible and synthetic convertible
securities, foreign
securities, non-publicly traded and illiquid securities and
securities of
developing countries and unseasoned issuers.
Engaging in financial futures and options transactions,
engaging in
currency exchange and foreign currency options transactions,
entering into
securities transactions on a when-issued or delayed delivery
basis, entering
into repurchase agreements and lending portfolio securities are
investment
techniques involving risks to the Portfolio. See "Investment
Objectives and
Management Policies -- Risk Factors and Special Considerations."
The Portfolio's Articles of Incorporation include provisions
that could
have the effect of limiting the ability of other entities or
persons to acquire
control of the Portfolio and of depriving shareholders of an
opportunity to sell
their shares of Common Stock at a premium over prevailing market
prices. See
"Certain Provisions of the Articles of Incorporation."
Stock Purchases and Tenders The Portfolio's Board of Directors
currently
contemplates that the Portfolio may from time to time consider
the repurchase of
its Common Stock on the open market or make tender offers for the
Common Stock.
See "Stock Purchases and Tenders."
7
<PAGE>
Managed High Income Portfolio Inc.
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Portfolio Expenses
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The following tables are intended to assist investors in
understanding the
various costs and expenses associated with investing in the
Portfolio.
=================================================================
===============
Shareholder Transaction Expenses
Sales Load (as a percentage of offering
price)................... None
Dividend Reinvestment and Cash Purchase Plan
Fees................ None
Annual Portfolio Operating Expenses
(as a percentage of net assets)*
Investment Advisory and Administration
Fees...................... 1.10%
Other
Expenses...................................................
0.14%
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===============
Total Annual Operating
Expenses*....................................... 1.24%
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===============
* See "Management of the Portfolio" for additional
information. "Other
Expenses" are based on data from the Portfolio's fiscal
ended February 29,
1996.
Example
An investor would pay the following expenses on a $1,000
investment,
assuming a 5.00% annual return:
One Year Three Years Five Years
Ten Years
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$13 $39 $68
$150
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This hypothetical example assumes that all dividends and
other
distributions are reinvested at net asset value and that the
percentage amounts
listed under Annual Portfolio Operating Expenses remain the same
in the years
shown. The above tables and assumptions in the hypothetical
example of a 5%
annual return and reinvestment at net asset value are required by
regulations of
the SEC applicable to all investment companies; the assumed 5%
return is not a
prediction of, and does not represent, the projected or actual
performance of
the Common Stock.
This hypothetical example should not be considered a
representation of past
or future expenses, and the Portfolio's actual expenses may be
more or less than
those shown.
8
<PAGE>
Managed High Income Portfolio Inc.
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Financial Highlights
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The table below sets forth selected financial data for an
outstanding share
of Common Stock throughout the period presented. The per share
operating
performance and ratios for the 1996 fiscal year have been audited
by KMPG Peat
Marwick LLP, as stated in their report dated April 26, 1996 that
is contained in
the SAI and can be obtained by shareholders. The per share
operating performance
and ratios for the periods prior to the 1996 fiscal year were
audited by other
auditors. The following information should be read in conjunction
with the
Portfolio's financial statements dated February 29, 1996 and
notes to those
financial statements, which are incorporated by reference into
this Prospectus.
For a Share Outstanding Throughout Each Period:
=================================================================
===============
1996 1995
1994(1)
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Net Asset Value, Beginning of Period $ 10.88 $ 12.39
$ 12.00
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Income (Loss) From Operations:
Net investment income 1.13 1.12
0.98
Net realized and unrealized gain (loss) 0.65
(1.48) 0.51
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Total Income (Loss) From Operations 1.78
(0.36) 1.49
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Offering Costs Credited (Charged) to
Paid-In Capital Less Distributions From:
Net investment income (1.27)
(1.00) (0.96)
Capital (0.03) --
- --
Net realized gains --
(0.15) (0.12)
Total Distributions (1.30)
(1.15) (1.08)
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Net Asset Value, End of Period $ 11.36 $ 10.88
$ 12.39
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Total Return 17.79%
(0.43)% 6.85%++
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Net Assets, End of Period (000s) $476,824 $456,789
$520,091
=================================================================
===============
Ratios to Average Net Assets:
Expenses 1.24%
1.24% 1.19%+
Net investment income 9.74 9.96
8.74+
Portfolio Turnover Rate 73%
62% 108%
Market Value, End of Period $ 11.125 $ 10.500
$ 11.750
=================================================================
===============
(1) For the period from March 26, 1993 (commencement of
operations) to February
28, 1994.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
9
<PAGE>
Managed High Income Portfolio Inc.
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The Portfolio
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The Portfolio is a diversified, closed-end management
investment company
that seeks a high level of current income with capital
appreciation as a
secondary objective. The Portfolio, which was incorporated under
the laws of the
State of Maryland on December 24, 1992, is registered under the
Investment
Company Act of 1940, as amended ("1940 Act"), and has its
principal office at
388 Greenwich Street, New York, New York 10013. The Portfolio's
telephone number
is (212) 720-9218.
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The Offering
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Smith Barney intends to make a market in the Common Stock,
although it 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.
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. This Prospectus is to be used by Smith Barney in
connection 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 sale.
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Use Of Proceeds
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The Portfolio will not receive any proceeds from the sale of
any Common
Stock offered pursuant to this Prospectus. Proceeds received by
Smith Barney as
a result of its market-making in the Common Stock will be
utilized by Smith
Barney in connection with its secondary market operations and for
general
corporate purposes.
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Investment Objectives And Policies
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The Portfolio's primary investment objective is high current
income.
Capital appreciation is a secondary objective. Set out below is a
description of
the investment objectives and principal investment policies of
the Portfolio. No
assurances can be given that the Portfolio will be able to
achieve its
investment objectives. The Portfolio's investment objectives may
not be changed
without the affirmative vote of the holders of a majority (as
defined in the
1940 Act) of the Portfolio's outstanding shares.
10
<PAGE>
Managed High Income Portfolio Inc.
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Investment Objectives and Policies (continued)
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In seeking its objectives, the Portfolio will invest, under
normal
circumstances, at least 65% of its assets in high-yielding
corporate bonds,
debentures and notes. Although the Portfolio may invest in
securities of any
maturity, under current market conditions the Portfolio intends
that its
portfolio of fixed-income securities will have an average
remaining maturity of
between 5 and 10 years. SBMFM may adjust the Portfolio's average
maturity when,
based on interest rate trends and other market conditions, it
deems it
appropriate to do so. Up to 35% of the Portfolio's assets may be
invested in
common stock or other equity or equity-related securities,
including convertible
securities, preferred stock, warrants and rights. Equity
investments may be made
in securities of companies of any size depending on the relative
attractiveness
of the company and the economic sector in which it operates.
Securities
purchased by the Portfolio generally will be rated in the lower
categories of
recognized rating agencies, as low as C by Moody's or D by S&P,
or, if unrated,
will be securities that SBMFM deems to be of comparable quality.
However, the
Portfolio will not invest in securities rated lower than B by
both Moody's and
S&P if, immediately after such purchase, more than 10% of its
total assets are
invested in such securities. The Portfolio may hold securities
with higher
ratings when the yield differential between low-rated and higher-
rated
securities narrows and the risk of loss may be reduced
substantially with only a
relatively small reduction in yield. The Portfolio may also
invest in
higher-rated securities when SBMFM believes that a more defensive
investment
strategy is appropriate in light of market or economic
conditions. The Portfolio
also may lend its portfolio securities and purchase or sell
securities on a
when-issued or delayed-delivery basis.
The Portfolio may invest up to 20% of its assets in the
securities of
foreign issuers that are denominated in currencies other than the
U.S. dollar
and may invest without limitation in securities of foreign
issuers that are
denominated in U.S. dollars. In order to mitigate the effects of
uncertainty in
future exchange rates affecting the Portfolio's non-dollar
investments, the
Portfolio may engage in currency exchange transactions and
currency futures
contracts and related options and purchase options on foreign
currencies. The
Portfolio also may hedge against the effects of changes in the
value of its
investments by entering into interest rate futures contracts and
related
options. Special considerations associated with the Portfolio's
investments are
described below.
Investment Techniques
The Portfolio may employ, among others, the investment
techniques described
below:
Corporate Securities. Corporate securities in which the
Portfolio may
invest
11
<PAGE>
Managed High Income Portfolio Inc.
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Investment Objectives and Policies (continued)
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include corporate fixed-income securities of both domestic and
foreign issuers,
such as bonds, debentures, notes, equipment lease certificates,
equipment trust
certificates and preferred stock. Certain of the corporate fixed-
income
securities in which the Portfolio may invest may involve equity
characteristics.
In addition, the Portfolio may invest in participations that are
based on
revenues, sales or profits of an issuer or in common stock
offered as a unit
with corporate fixed-income securities.
Money-Market Instruments. When SBMFM believes that economic
circumstances
warrant a temporary defensive posture, the Portfolio may invest
without
limitation in short-term money market instruments rated Aaa or Aa
by Moody's or
AAA or AA by S&P, or, if unrated, of comparable quality in the
opinion of SBMFM.
The Portfolio may also invest in money market instruments to help
defray
operating expenses, to serve as collateral in connection with
certain investment
techniques and to hold as a reserve pending the payment of
dividends to
investors. Money market instruments in which the Portfolio
typically expects to
invest include: U.S. government securities; bank obligations
(including
certificates of deposit, time deposits and bankers' acceptances
of U.S. or
foreign banks); commercial paper; and repurchase agreements. To
the extent the
Portfolio invests in short-term money market instruments, it may
not be pursuing
its investment objectives.
Repurchase Agreements. The Portfolio may enter into
repurchase agreement
transactions with certain member banks of the Federal Reserve
System or with
certain dealers listed on the Federal Reserve Bank of New York's
list of
reporting dealers. Under the terms of a typical repurchase
agreement, the
Portfolio would acquire an underlying obligation for a relatively
short period
(usually not more than seven days) subject to an obligation of
the seller to
repurchase, and the Portfolio to resell, the obligation at an
agreed-upon price
and time, thereby determining the yield during the Portfolio's
holding period.
This arrangement results in a fixed rate of return that is not
subject to market
fluctuations during the Portfolio's holding period. Repurchase
agreements could
involve certain risks in the event of default or insolvency of
the seller,
including possible delays or restrictions on the Portfolio's
ability to dispose
of the underlying securities, the risk of a possible decline in
the value of the
underlying securities during the period in which the Portfolio
seeks to assert
its rights to them, the risk of incurring expenses associated
with asserting
those rights and the risk of losing all or part of the income
from the
agreement. SBMFM, acting under the supervision of the Portfolio's
Board of
Directors, reviews on an ongoing basis the value of the
collateral and the
creditworthiness of the banks and dealers with which the
Portfolio enters into
repurchase agreements to evaluate potential risk.
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Investment Objectives and Policies (continued)
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Government Securities. U.S. government securities in which
the Portfolio
may invest include direct obligations of the United States and
obligations
issued by U.S. government agencies and instrumentalities.
Included among the
direct obligations of the United States are Treasury Bills,
Treasury Notes and
Treasury Bonds, which differ principally in terms of their
maturities. Included
among the securities issued by U.S. government agencies and
instrumentalities
are: securities that are supported by the full faith and credit
of the United
States (such as Government National Mortgage Association
certificates);
securities that are supported by the right of the issuer to
borrow from the U.S.
Treasury (such as securities of Federal Home Loan Banks); and
securities that
are supported by the credit of the instrumentality (such as
Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation
bonds).
Zero Coupon, Pay-In-Kind and Delayed Interest Securities.
The Portfolio may
invest in zero coupon, pay-in-kind and delayed interest
securities as well as
custodial receipts or certificates underwritten by securities
dealers or banks
that evidence ownership of future interest payments, principal
payments or both
on certain U.S. government securities. Zero coupon securities pay
no cash income
to their holders until they mature and are issued at substantial
discounts from
their value at maturity. When held to maturity, their entire
return comes from
the difference between their purchase price and their maturity
value.
Pay-in-kind securities pay interest through the issuance to the
holders of
additional securities, and delayed interest securities are
securities which do
not pay interest for a specified period. Custodial receipts
evidencing specific
coupon or principal payments have the same general attributes as
zero coupon
U.S. government securities but are not considered to be U.S.
government
securities. The Portfolio's investments in zero coupon, pay-in-
kind and delayed
interest securities will result in special tax consequences.
Although zero
coupon securities do not make interest payments, for tax
purposes, a portion of
the difference between a zero coupon security's maturity value
and its purchase
price is taxable income of the Portfolio each year.
Convertible Securities and Synthetic Convertible Securities.
Convertible
securities are fixed-income securities that may be converted at
either a stated
price or stated rate into underlying shares of common stock.
Convertible
securities have general characteristics similar to both fixed-
income and equity
securities. Although to a lesser extent than with fixed-income
securities
generally, the market value of convertible securities tends to
decline as
interest rates increase and, conversely, tends to increase as
interest rates
decline. In addition, because of the conversion feature, the
market value of
convertible securities tends to vary with fluctuations in the
market value of
the underlying common stocks and, therefore, also will react to
variations in
the general market for equity securities. A unique feature of
convert-
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ible securities is that as the market price of the underlying
common stock
declines, convertible securities tend to trade increasingly on a
yield basis,
and so may not experience market value declines to the same
extent as the
underlying common stock. When the market price of the underlying
common stock
increases, the prices of the convertible securities tend to rise
as a reflection
of the value of the underlying common stock. While no securities
investments are
without risk, investments in convertible securities generally
entail less risk
than investments in common stock of the same issuer.
As fixed-income securities, convertible securities are
investments which
provide for a stable stream of income with generally higher
yields than common
stocks. Of course, like all fixed-income securities, there can be
no assurance
of current income because the issuers of the convertible
securities may default
on their obligations. Convertible securities, however, generally
offer lower
interest or dividend yields than non-convertible securities of
similar quality
because of the potential for capital appreciation. A convertible
security, in
addition to providing fixed income, offers the potential for
capital
appreciation through the conversion feature, which enables the
holder to benefit
from increases in the market price of the underlying common
stock. However,
there can be no assurance of capital appreciation because
securities prices
fluctuate.
Convertible securities generally are subordinated to other
similar but
non-convertible securities of the same issuer, although
convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment
to all equity
securities, and convertible preferred stock is senior to common
stock of the
same issuer. Because of the subordination feature, however,
convertible
securities typically have lower ratings than similar non-
convertible securities.
Unlike a convertible security, which is a single security, a
synthetic
convertible security is comprised of two distinct securities that
together
resemble convertible securities in certain respects. Synthetic
convertible
securities are created by combining non-convertible bonds or
preferred stocks
with warrants or stock call options. The options that will form
elements of
synthetic convertible securities will be listed on a securities
exchange or on
the National Association of Securities Dealers Automated
Quotation System. The
two components of a synthetic convertible security, which will be
issued with
respect to the same entity, generally are not offered as a unit,
and may be
purchased and sold by the Portfolio at different times. Synthetic
convertible
securities differ from convertible securities in certain
respects, including
that each component of a synthetic convertible security has a
separate market
value and responds differently to market fluctuations. Investing
in synthetic
convertible securities involves the risk normally involved in
holding the
securities comprising the synthetic convertible security.
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Investment Objectives and Policies (continued)
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Futures Contracts and Options on Futures Contracts. When
deemed advisable
by SBMFM, the Portfolio may enter into interest rate and currency
futures
contracts and may purchase and sell put and call options on such
futures
contracts. The Portfolio will enter into such transactions for
hedging purposes
or for other appropriate risk-management purposes permitted under
the rules and
regulations of the Commodity Futures Trading Commission (the
"CFTC") and the SEC
and may enter into closing purchase transactions with respect to
options written
by the Portfolio in order to terminate existing positions. There
is no guarantee
that such closing transactions can be effected at any particular
time or at all.
An interest rate futures contract is a standardized contract for
the future
delivery of a specified security (such as a U.S. Treasury Bond or
U.S. Treasury
Note) or its equivalent at a future date at a price set at the
time of the
contract. A currency futures contract is a standardized contract
for the future
delivery of a specified amount of currency at a future date at a
price set at
the time of the contract. The Portfolio may only enter into
futures contracts
traded on regulated commodity exchanges.
An option on a futures contract, as contrasted with the
direct investment
in such a contract, gives the purchaser of the option the right,
in return for
the premium paid, to assume a position in a futures contract at a
specified
exercise price at any time on or before the expiration date of
the option. Upon
exercise of an option, the delivery of the futures position by
the writer of the
option to the holder of the option will be accomplished by
delivery of the
accumulated balance in the writer's futures margin account, which
represents the
amount by which the market price of the futures contract exceeds,
in the case of
a call, or is less than, in the case of a put, the exercise price
of the option
on the futures contract. The potential loss related to the
purchase of an option
on a futures contract is limited to the premium paid for the
option (plus
transaction costs). With respect to options purchased by the
Portfolio, there
are no daily cash payments made by the Portfolio to reflect
changes in the value
of the underlying contract; however, the value of the option does
change daily
and that change would be reflected in the net asset value of the
Portfolio.
The Portfolio may not enter into futures and options
contracts for which
aggregate initial margin deposits and premiums paid for unexpired
options to
establish positions that are not bona fide hedging positions (as
defined by the
CFTC) exceed 5% of the fair market value of the Portfolio's total
assets, after
taking into account unrealized profits and unrealized losses on
such contracts.
In the event that the Portfolio enters into short positions in
futures contracts
as a hedge against a decline in the value of the its portfolio
securities, the
value of such futures contracts may not exceed the total market
value of the
Portfolio's investments. With respect to each long position in a
futures
contract or option thereon, the underlying commodity value of
such contract
always will be covered by cash or cash equivalents set
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Investment Objectives and Policies (continued)
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aside plus accrued profits held in a segregated account. In
addition, certain
provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), may
limit the extent to which the Portfolio may enter into futures
contracts or
engage in options transactions. See "Taxation."
Currency Exchange Transactions and Options on Foreign
Currencies. In order
to protect against uncertainty in the level of future exchange
rates, the
Portfolio may engage in currency exchange transactions and
purchase
exchange-traded put and call options on foreign currencies. The
Portfolio will
conduct its currency exchange transactions either on a spot
(i.e., cash) basis
at the rate prevailing in the currency exchange market or through
entering into
forward contracts to purchase or sell currencies. The Portfolio's
dealings in
forward currency exchange and options on foreign currencies are
limited to
hedging involving either specific transactions or portfolio
positions.
A forward currency contract involves an obligation to
purchase or sell a
specific currency for an agreed-upon price at an agreed-upon
date, which may be
any fixed number of days from the date of the contract agreed
upon by the
parties. These contracts are entered into in the interbank market
conducted
directly between currency traders (usually large commercial
banks) and their
customers. Although these contracts are intended to minimize the
risk of loss
due to a decline in the value of the hedged currency, at the same
time they tend
to limit any potential gain that might result should the value of
the currency
increase.
The Portfolio may purchase put options on a foreign currency
in which
securities held by the Portfolio are denominated to protect
against a decline in
the value of the currency in relation to the currency in which
the exercise
price is denominated. The Portfolio may purchase a call option on
a foreign
currency to hedge against an adverse exchange rate of the
currency in which a
security that it anticipates purchasing is denominated in
relation to the
currency in which the exercise price is denominated. An option on
a foreign
currency gives the purchaser, in return for a premium, the right
to sell, in the
case of a put, and buy, in the case of a call, the underlying
currency at a
specified price during the term of the option. Although the
purchaser of an
option on a foreign currency may constitute an effective hedge by
the Portfolio
against fluctuations in the exchange rates, in the event of rate
movements
adverse to the Portfolio's position, the Portfolio may forfeit
the entire amount
of the premium plus related transaction costs. Options on foreign
currencies
purchased by the Portfolio may be traded on domestic and foreign
exchanges or
traded over-the-counter.
Although the foreign currency market may not necessarily be
more volatile
than the market in other commodities, the foreign currency market
offers less
protection against defaults in the forward trading of currencies
than is
available when
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trading in currencies occurs on an exchange. Because a forward
currency contract
is not guaranteed by an exchange or clearing-house, default on
the contract
would deprive the Portfolio of unrealized profits or force the
Portfolio to
cover its commitments for the purchase or resale, if any, at the
current market
price.
When-Issued Securities and Delayed-Delivery Transactions. In
order to
secure yields or prices deemed advantageous at the time, the
Portfolio may
purchase or sell any portfolio securities on a when-issued or
delayed-delivery
basis. The Portfolio will enter into a when-issued transaction
for the purpose
of acquiring portfolio securities and not for the purpose of
leverage. In such
transactions delivery of the securities occurs beyond the normal
settlement
periods, but no payment or delivery is made by the Portfolio
prior to the actual
delivery or payment by the other party to the transaction. Due to
fluctuations
in the value of securities purchased or sold on a when-issued or
delayed-delivery basis, the yields obtained on such securities
may be higher or
lower than the yields available in the market on the dates when
the investments
are actually delivered to the buyers. The Portfolio will
establish a segregated
account consisting of cash, U.S. government securities or other
high grade debt
obligations in an amount equal to the amount of its when-issued
and
delayed-delivery commitments. Placing securities rather than cash
in the
segregated account may have a leveraging effect on the
Portfolio's net assets.
The Portfolio will not accrue income with respect to a when-
issued security
prior to its stated delivery date.
Lending of Portfolio Securities. The Portfolio has the
ability to lend
portfolio securities to brokers, dealers and other financial
organizations.
These loans, if and when made, may not exceed 20% of the
Portfolio's assets
taken at value. Loans of portfolio securities will be
collateralized by cash,
letters of credit or U.S. government securities that are
maintained at all times
in an amount at least equal to the current market value of the
loaned
securities.
Non-Publicly Traded and Illiquid Securities. The Portfolio
may invest up to
20% of its assets in illiquid securities. The sale of securities
that are not
publicly traded is typically restricted under the Federal
securities laws. As a
result, the Portfolio may be forced to sell these securities at
less than fair
market value or may not be able to sell them when SBMFM believes
it desirable to
do so. The Portfolio's investments in illiquid securities are
subject to the
risk that, should the Portfolio desire to sell any of these
securities when a
ready buyer is not available at a price that the Portfolio deems
representative
of its value, the value of the Portfolio's net assets could be
adversely
affected.
Securities of Developing Countries. A developing country
generally is
considered to be a country that is in the initial stages of its
industrialization cycle.
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Investment Objectives and Policies (continued)
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Investing in the equity and fixed-income markets of developing
countries
involves exposure to economic structures that are generally less
diverse and
mature, and to political systems that can be expected to have
less stability,
than those of developed countries. Historical experience
indicates that the
markets of developing countries have been more volatile than the
markets of more
mature economies of developed countries; however, such markets
often have
provided higher rates of return to investors.
Securities of Unseasoned Issuers. Securities in which the
Portfolio may
invest may have limited marketability and, therefore, may be
subject to wide
fluctuations in market value. In addition, the issuers of certain
securities may
lack a significant operating history and be dependent on products
or services
without an established market share.
Short Sales Against the Box. The Portfolio may make short
sales of
securities in order to reduce market exposure and/or to increase
its income if,
at all times when a short position is open, the Portfolio owns an
equal or
greater amount of such securities or owns preferred stock, debt
or warrants
convertible or exchangeable into an equal or greater number of
the shares of the
securities sold short. Short sales of this kind are referred to
as short sales
"against the box." The broker-dealer that executes a short sale
generally
invests the cash proceeds of the sale until they are paid to the
Portfolio.
Arrangements may be made with the broker-dealer to obtain a
portion of the
interest earned by the broker on the investment of short sale
proceeds. The
Portfolio will segregate the securities against which short sales
against the
box have been made in a special account with its custodian. Not
more than 10% of
the Portfolio's net assets (taken at current value) may be held
as collateral
for such sales at any one time.
Loan Participations and Assignments. The Portfolio may
invest a portion of
its assets in loan participations ("Participations"). By
purchasing a
Participation, the Portfolio acquires some or all of the interest
of a bank or
other lending institution in a loan to a corporate or government
borrower. The
Participations typically will result in the Portfolio having a
contractual
relationship only with the lender not the borrower. The Portfolio
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 Portfolio 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 Portfolio may
not directly
benefit from any collateral supporting the loan in which it has
purchased the
Participation. As a result, the Portfolio will assume the credit
risk of both
the borrower and the lender that is selling the Participation. In
the event of
the insol-
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Investment Objectives and Policies (continued)
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vency of the lender selling a Participation, the Portfolio 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 Portfolio will acquire
Participations only if the
lender interpositioned between the Portfolio and the borrower is
determined by
management to be creditworthy.
The Portfolio may also invest in assignments of portions of
loans from
third parties ("Assignments"). When it purchases Assignments from
lenders, the
Portfolio will acquire direct rights against the borrower on the
loan. However,
since Assignments are arranged through private negotiations
between potential
assignees and assignors, the rights and obligations acquired by
the Portfolio as
the purchaser of an Assignment may differ from, and be more
limited than, those
held by the assigned lender.
The Portfolio may have difficulty disposing of Assignments
and
Participations. The liquidity of such securities is limited and
the Portfolio
anticipates that such securities could be sold only to a limited
number of
institutional investors. The lack of a liquid secondary market
could have an
adverse impact on the value of such securities and on the
Portfolio's ability to
dispose of particular Assignments or Participations when
necessary to meet the
Portfolio's liquidity needs or in response to a specific economic
event, such as
a deterioration in the creditworthiness of the borrower. The lack
of a liquid
secondary market for Assignments and Participations also may make
it more
difficult for the fund to assign a value to those securities for
purposes of
valuing the Portfolio's investments and calculating its net asset
value.
Risk Factors and Special Considerations.
Investment in the Portfolio involves risk factors and
special
considerations, such as those described below:
Zero Coupon, Pay-In-Kind and Delayed Interest Securities. As
discussed
above, the Portfolio may invest in zero coupon, pay-in-kind and
delayed interest
securities as well as custodial receipts. Because interest on
zero coupon,
pay-in-kind and delayed interest securities is not paid on a
current basis, the
values of securities of this type are subject to greater
fluctuations than are
the values of securities that distribute income regularly and may
be more
speculative than such securities. Accordingly, the values of
these securities
may be highly volatile as interest rates rise or fall.
Additionally, although
typically under the terms of a custodial receipt the Portfolio is
authorized to
assert its rights directly against the issuer of the underlying
obligation, the
Portfolio may be required to assert through the custodian bank
such rights as
may exist against the underlying issuer. Thus, in the event the
underlying
issuer fails to pay principal and/or interest when due, the
Portfolio may be
subject to delays, expenses and risks that are greater than those
that would
have
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Investment Objectives and Policies (continued)
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been involved if the Portfolio had purchased a direct obligation
of the issuer.
In addition, in the event that the trust or custodial account in
which the
underlying security has been deposited is determined to be an
association
taxable as a corporation, instead of a non-taxable entity, the
yield on the
underlying security would be reduced in respect of any taxes
paid.
Futures Contracts and Options on Futures Contracts. Although
the Portfolio
intends to enter into futures or options contracts only if an
active market
exists for the contracts, no assurance can be given that an
active market will
exist for the contracts at any particular time. If it is not
possible to close a
futures position in anticipation of adverse price movements, the
Portfolio would
be required to make daily cash payments of variation margin. In
those
circumstances, an increase in the value of the portion of the
portfolio being
hedged, if any, may offset partially or completely losses on the
futures
contract. No assurance can be given, however, that the price of
the securities
being hedged will correlate with the price movements in a futures
contract and,
thus, provide an offset to losses on the futures contract or
option on the
futures contract. In addition, in light of the risk of an
imperfect correlation
between the Portfolio's securities that are the subject of a
hedging transaction
and the futures or options contract used as a hedging device, the
hedge may not
be fully effective because, for example, losses on the
Portfolio's securities
may be in excess of gains on the futures contract or losses on
the futures
contract may be in excess of gains on the Portfolio's securities
that were the
subject of the hedge. In an effort to compensate for the
imperfect correlation
of movements in the price of the securities being hedged and
movements in the
price of futures contracts, the Portfolio may enter into futures
contracts or
options on futures contracts in a greater or lesser dollar amount
than the
dollar amount of the securities being hedged if the historical
volatility of the
futures contract has been less or greater than that of the
securities. This
"over-hedging" or "under hedging" may adversely affect the
Portfolio's net
investment results if market movements are not as anticipated
when the hedge is
established.
If the Portfolio has hedged against the possibility of an
increase in
interest rates adversely affecting the value of securities held
in its portfolio
and rates decrease instead, the Portfolio will lose part or all
of the benefit
of the increased value of securities that it has hedged because
it will have
offsetting losses in its futures or options positions. In
addition, in those
situations, if the Portfolio has insufficient cash, it may have
to sell
securities to meet daily variation margin requirements on the
futures contracts
at a time when it may be disadvantageous to do so. These sales of
securities
may, but will not necessarily, be at increased prices that
reflect the decline
in interest rates. The Portfolio may enter into options
transactions primarily
as hedges to reduce investment risk, generally by making an
investment expected
to
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move in the opposite direction of a portfolio position. A hedge
is designed to
offset a loss on a portfolio position with a gain on the hedge
position; at the
same time, however, a properly correlated hedge will result in a
gain on the
portfolio position being offset by a loss on the hedge position.
The Portfolio
bears the risk that the prices of the securities being hedged
will not move in
the same amount as the hedge. The Portfolio will engage in
hedging transactions
only when deemed advisable by SBMFM. Successful use by the
Portfolio of options
will depend on SBMFM's ability to correctly predict movements in
the direction
of the stock underlying the option used as a hedge. Losses
incurred in hedging
transactions and the costs of these transactions will affect the
Portfolio's
performance.
The ability of the Portfolio to engage in closing
transactions with respect
to options depends on the existence of a liquid secondary market.
While the
Portfolio generally will purchase options only if there appears
to be a liquid
secondary market for the options purchased or sold, for some
options no such
secondary market may exist or the market may cease to exist.
Foreign Securities. There are certain risks involved in
investing in
securities of companies and governments of foreign nations which
are in addition
to the usual risks inherent in domestic investments. These risks
include those
resulting from devaluation of currencies, future adverse
political and economic
developments and the possible imposition of currency exchange
blockages or other
foreign governmental laws or restrictions, reduced availability
of public
information concerning issuers and the lack of uniform
accounting, auditing and
financial reporting standards or of other regulatory practices
and requirements
comparable to those applicable to domestic companies. The net
asset value of the
Portfolio may be adversely affected by fluctuations in value of
one or more
foreign currencies relative to the U.S. dollar. Moreover,
securities of many
foreign issuers and their markets may be less liquid and their
prices more
volatile than those of securities of comparable domestic issuers.
In addition,
with respect to certain foreign countries, there is the
possibility of
expropriation, nationalization, confiscatory taxation and
limitations on the use
or removal of funds or other assets of the Portfolio, including
the withholding
of dividends. Foreign securities may be subject to foreign
government taxes that
could reduce the yield on such securities. Because the Portfolio
will invest in
securities denominated or quoted in currencies other than the
U.S. dollar,
changes in foreign currency exchange rates may adversely affect
the value of
portfolio securities and the appreciation or depreciation of
investments.
Investments in foreign securities also may result in higher
expenses due to the
cost of converting foreign currency to U.S. dollars, the payment
of fixed
brokerage commissions on foreign exchanges, the expense of
maintaining
securities with foreign custodians and the imposition of transfer
taxes or
transaction charges associated with foreign exchanges.
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Medium-, Low- and Unrated Securities. The Portfolio may
invest in medium-
or low-rated securities and unrated securities of comparable
quality. Generally,
these securities offer a higher return potential than higher-
rated securities
but involve greater volatility of price and risk of loss of
income and
principal, including the possibility of default or bankruptcy of
the issuers of
such securities. Medium- and low-rated and comparable unrated
securities will
likely have large uncertainties or major risk exposures to
adverse conditions
and are predominantly speculative with respect to the issuer's
capacity to pay
interest and repay principal in accordance with the terms of the
obligation.
Accordingly, it is possible that these types of factors could, in
certain
instances, reduce the value of securities held by the Portfolio,
with a
commensurate effect on the value of the Portfolio's shares.
The markets in which medium- and low-rated or comparable
unrated securities
are traded generally are more limited than those in which higher-
rated
securities are traded. The existence of limited markets for these
securities may
restrict the availability of securities for the Portfolio to
purchase and also
may have the effect of limiting the ability of the Portfolio to
(a) obtain
accurate market quotations for purposes of valuing securities and
calculating
net asset value and (b) sell securities at their fair value to
respond to
changes in the economy or the financial markets. The market for
medium- and
low-rated and comparable unrated securities is relatively new and
has not fully
weathered a major economic recession. Any such economic downturn
could adversely
affect the ability of the issuers of such securities to repay
principal and pay
interest thereon.
While the market values of medium- and low-rated 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 certain of
these
securities also tend to be more sensitive to individual corporate
developments
and changes in economic conditions than higher-rated securities.
In addition,
medium- and low-rated and comparable unrated securities generally
present a
higher degree of credit risk. Issuers of medium- and low-rated
and comparable
unrated securities are often highly leveraged and may not have
more traditional
methods of financing available to them so that their ability to
service their
debt obligations during an economic downturn or during sustained
periods of
rising interest rates may be impaired. The risk of loss due to
default by such
issuers is significantly greater because medium- and low-rated
and comparable
unrated securities generally are unsecured and frequently are
subordinated to
the prior payment of senior indebtedness. The Portfolio may 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.
Fixed-income securities, including medium- and low-rated and
comparable
unrated securities, frequently have call or buy-back features
that permit their
issuers
22
<PAGE>
Managed High Income Portfolio Inc.
- -----------------------------------------------------------------
- ---------------
Investment Objectives and Policies (continued)
- -----------------------------------------------------------------
- ---------------
to call or repurchase the securities from their holders, such as
the Portfolio.
If an issuer exercises these rights during periods of declining
interest rates,
the Portfolio may have to replace the security with a lower
yielding security,
resulting in a decreased return to the Portfolio.
Up to 10% of the Portfolio's assets may be invested in
securities rated
lower than B by both Moody's and S&P. Securities which are rated
Ba by Moody's
or BB by S&P have speculative characteristics with respect to
capacity to pay
interest and repay principal. Securities which are rated B
generally lack
characteristics of a desirable investment and assurance of
interest and
principal payments over any long period of time may be small.
Securities which
are rated Caa or CCC or below are of poor standing. Those issues
may be in
default or present elements of danger with respect to principal
or interest.
Securities rated C by Moody's and D by S&P are the lowest rating
class and
indicate that payments are in default or that a bankruptcy
petition has been
filed with respect to the issuer or that the issuer is regarded
as having
extremely poor prospects. See Appendix A for a description of
corporate bond
ratings by Moody's and S&P.
In light of these risks, SBMFM, in evaluating the
creditworthiness of an
issue, whether rated or unrated, will take various factors into
consideration,
which may include, as applicable, the issuer's financial
resources, its
sensitivity to economic conditions and trends, the operating
history of and the
community support for the facility financed by the issue, the
ability of the
issuer's management and regulatory matters.
Ratings as Investment Criteria. In general, the ratings of
nationally
recognized statistical rating organizations ("NRSROs") represent
the opinions of
these agencies as to the quality of securities that they rate.
Such ratings,
however, are relative and subjective, and are not absolute
standards of quality
and do not evaluate the market value risk of the securities.
These ratings will
be used by the Portfolio as initial criteria for the selection of
portfolio
securities, but the Portfolio also will rely upon the independent
advice of
SBMFM to evaluate potential investments. Among the factors that
will be
considered are the long-term ability of the issuer to pay
principal and interest
and general economic trends.
Subsequent to its purchase by the Portfolio, an issue of
securities may
cease to be rated or its rating may be reduced below the minimum
required for
purchase by the Portfolio. In addition, it is possible that an
NRSRO might not
change its rating of a particular issue to reflect subsequent
events. None of
these events will require sale of such securities by the
Portfolio, but SBMFM
will consider such events in its determination whether the
Portfolio should
continue to hold the securities. In addition, to the extent that
the ratings
change as a result of changes in such organiza-
23
<PAGE>
Managed High Income Portfolio Inc.
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Investment Objectives and Policies (continued)
- -----------------------------------------------------------------
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tions or their rating systems, or due to a corporate
reorganization, the
Portfolio will attempt to use comparable ratings as standards for
its
investments in accordance with its investment objectives and
policies.
- -----------------------------------------------------------------
- ---------------
Investment Restrictions
- -----------------------------------------------------------------
- ---------------
The Portfolio has adopted certain fundamental investment
restrictions that
may not be changed without the prior approval of the holders of a
majority of
the Portfolio's outstanding voting securities. A "majority of the
Portfolio's
outstanding voting securities" for this purpose means the lesser
of (1) 67% or
more of the shares of the Portfolio's Common Stock present at a
meeting of
shareholders, if the holders of 50% of the outstanding shares are
present or
represented by proxy at the meeting or (2) more than 50% of the
outstanding
shares. Among the investment restrictions applicable to the
Portfolio is that
the Portfolio is prohibited from borrowing money, except for
temporary or
emergency purposes, in amounts not exceeding 10% of its total
assets (not
including the amount borrowed) and as otherwise described in this
Prospectus;
when the Portfolio's borrowings exceed 5% of the value of its
total assets, the
Portfolio will not make any additional investments. In addition,
the Portfolio
will not invest more than 25% of its total assets in the
securities of issuers
in any single industry, except that this limitation will not be
applicable to
the purchase of U.S. government securities. For a complete
listing of the
investment restrictions applicable to the Portfolio, see
"Investment
Restrictions" in the Portfolio's Statement of Additional
Information dated June
27, 1996. All percentage limitations included in the investment
restrictions
apply immediately after a purchase or initial investment, and any
subsequent
change in any applicable percentage resulting from market
fluctuations will not
require the Portfolio to dispose of any security that it holds.
- -----------------------------------------------------------------
- ---------------
Share Price Data
- -----------------------------------------------------------------
- ---------------
The Common Stock is traded on the NYSE under the symbol
"MHY." Smith Barney
also intends to make a market in the Portfolio's Common Stock.
The following table sets forth the high and low sales prices
for the Common
Stock, the net asset value per share and the discount or premium
to net asset
value represented by the quotation for each quarterly period
within the two most
recent fiscal years.
24
<PAGE>
Managed High Income Portfolio Inc.
- -----------------------------------------------------------------
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Investment Objectives and Policies (continued)
- -----------------------------------------------------------------
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=================================================================
===============
Quarterly Net Net Asset NYSE
Premium
Period Asset Value NYSE Value at Price
at (Discount)
Ended Price Range Price Range Quarter End Quarter
End to NAV
- -----------------------------------------------------------------
- ---------------
5/31/94 $11.48 - $12.28 $10.2500 - $11.8250 $11.49
$11.000 (4.26%)
8/31/94 11.11 - 11.52 9.8250 - 11.5000 $11.11
$10.500 (5.49%)
11/30/94 10.68 - 11.10 9.5000 - 10.6875 $10.68
$10.125 (5.20%)
2/28/95 10.65 - 10.88 9.6250 - 10.6250 $10.88
$10.500 (3.49%)
5/31/95 10.89 - 11.21 10.1250 - 11.0000 $11.21
$10.750 (4.10%)
8/31/95 11.11 - 11.36 10.3750 - 11.0000 $11.25
$10.625 (5.56%)
11/30/95 11.22 - 11.37 10.3750 - 10.8250 $11.29
$10.750 (4.78%)
2/29/96 11.15 - 11.51 10.3750 - 11.3750 $11.36
$11.125 (2.07%)
5/31/96 11.11 - 11.39 10.5000 - 11.2500 $11.18
$10.625 (4.96%)
=================================================================
===============
As of June 14, 1996, the price of Common Stock as quoted
on the NYSE
was $10.5000, representing a discount from the Common Stock's net
asset value of
$11.10 calculated on that day. Since the commencement of the
Portfolio's
operations, the Portfolio's shares have traded in the market at
prices that were
at times above, but generally were below, net asset value.
- -----------------------------------------------------------------
- ---------------
Management Of The Portfolio
- -----------------------------------------------------------------
- ---------------
Board of Directors
Overall responsibility for management and supervision of the
Portfolio
rests with the Portfolio's Board of Directors. The Directors
approve all
significant agreements with the Portfolio's investment adviser,
administrator,
custodian and transfer agent. The day-to-day operations of the
Portfolio are
delegated to the Portfolio's investment adviser and
administrator. The SAI
contains background information regarding each Director and
executive officer of
the Portfolio.
Investment Adviser and Administrator
SBMFM, located at 388 Greenwich Street, New York, New York
10013, serves as
the Portfolio's investment adviser. SBMFM, through its
predecessors, has been in
the investment counseling business since 1934 and renders
investment advice to a
wide variety of individual, institutional and investment company
clients with
aggregate assets under management as of February 29, 1996 in
excess of $75
billion.
25
<PAGE>
Managed High Income Portfolio Inc.
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Management Of The Portfolio (continued)
- -----------------------------------------------------------------
- ---------------
Smith Barney is located at 388 Greenwich Street, New York,
New York 10013.
Smith Barney, is also a wholly owned subsidiary of Holdings,
which in turn is a
wholly-owned subsidiary of Travelers, a diversified financial
services holding
company engaged through its subsidiaries principally in four
business segments:
Investment Services, Consumer Finance Services, Life Insurance
Services and
Property & Casualty Insurance Services.
Subject to the supervision and direction of the Portfolio's
Board of
Directors, SBMFM manages the securities held by the Portfolio in
accordance with
the Portfolio's stated investment objectives and policies, makes
investment
decisions for the Portfolio, places orders to purchase and sell
securities on
behalf of the Portfolio and employs managers and securities
analysts who provide
research services to the Portfolio. The Portfolio pays SBMFM a
fee for
investment advisory services provided to the Portfolio that is
computed daily
and paid monthly at the annual rate of 0.90% of the value of the
Portfolio's
average daily net assets.
Transactions on behalf of the Portfolio are allocated to
various dealers by
SBMFM in its best judgment. The primary consideration is prompt
and effective
execution of orders at the most favorable price. Subject to that
primary
consideration, dealers may be selected for their research,
statistical or other
services to enable SBMFM to supplement its own research and
analysis with the
views and information of other securities firms. The Portfolio
may use Smith
Barney or a Smith Barney affiliated broker in connection with the
purchase or
sale of securities when SBMFM believes that the broker's charge
for the
transaction does not exceed usual and customary levels. The same
standard
applies to the use of Smith Barney as a broker in connection with
entering into
options and futures contracts. The Portfolio paid no brokerage
commissions in
the last fiscal year.
As the Portfolio's administrator, SBMFM generally manages
all aspects of
the Portfolio's administration and operation. The Portfolio pays
SBMFM a fee for
administration services that is computed daily and paid monthly
at the annual
rate of 0.20% of the Portfolio's average daily net assets. The
combined annual
rate of fees paid by the Portfolio for advisory and
administrative services is
higher than the rates for similar services paid by other publicly
offered,
closed-end management investment companies that have investment
objectives and
policies similar to those of the Portfolio.
Portfolio Management
John C. Bianchi, Vice President and Investment Officer of
the Portfolio, is
primarily responsible for the management of the Portfolio's
assets. Mr. Bianchi
has served the Portfolio in this capacity since the Portfolio
commenced
operations in
26
<PAGE>
Managed High Income Portfolio Inc.
- -----------------------------------------------------------------
- ---------------
Management Of The Portfolio (continued)
- -----------------------------------------------------------------
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1993 and manages the day-to-day operations of the Portfolio,
including making
all investment decisions. Mr. Bianchi is a Managing Director of
SBMFM and, as
such, is the senior asset manager for investment companies and
other accounts
investing in high yield securities.
- -----------------------------------------------------------------
- ---------------
Dividends And Distributions; Dividend Reinvestment Plan
- -----------------------------------------------------------------
- ---------------
The Portfolio expects to pay monthly dividends of net
investment income
(that is, income other than net realized capital gains) to the
holders of the
Common Stock. Under the Portfolio's current policy, which may be
changed at any
time by its Board of Directors, the Portfolio's monthly dividends
will be made
at a level that reflects the past and projected performance of
the Portfolio,
which policy over time will result in the distribution of
substantially all the
net investment income of the Portfolio. Expenses of the Portfolio
are accrued
each day. Net realized capital gains, if any, will be distributed
to the
shareholders at least once a year.
Under the Portfolio's Dividend Reinvestment Plan (the
"Plan"), a
shareholder whose shares of Common Stock are registered in his
own name will
have all distributions from the Portfolio reinvested
automatically by the
Transfer Agent as agent under the Plan, unless the shareholder
elects to receive
cash. Distributions with respect to shares registered in the name
of a
broker-dealer or other nominee (that is, in "Street Name") will
be reinvested by
the broker or nominee in additional shares under the Plan, unless
the service is
not provided by the broker or nominee or the shareholder elects
to receive
distributions in cash. Investors who own Common Stock registered
in Street Name
should consult their broker-dealers for details regarding
reinvestment. All
distributions to Portfolio shareholders who do not participate in
the Plan will
be paid by check mailed directly to the record holder by or under
the direction
of the Transfer Agent as dividend-paying agent.
If the Portfolio declares a dividend or capital gains
distribution payable
either in shares of Common Stock or in cash, shareholders who are
not Plan
participants will receive cash, and Plan participants will
receive the
equivalent amount in shres of Common Stock. When the market price
of the Common
Stock is equal to or exceeds the net asset value per share of the
Common Stock
on the Valuation Date (as defined below), Plan participants will
be issued
shares of Common Stock valued at the net asset value most
recently determined as
described below under "Net Asset Value" or, if net asset value is
less than 95%
of the current market price of the Common Stock, then at 95% of
the market
value. The Valuation Date is the dividend or capital gains
distribution record
date or, if that date is not a NYSE trading day, the immediately
preceding
trading day.
27
<PAGE>
Managed High Income Portfolio Inc.
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Dividends And Distributions; Dividend Reinvestment Plan
(continued)
- -----------------------------------------------------------------
- ---------------
If the market price of the Common Stock is less than the net
asset value of
the Common Stock, or if the Portfolio declares a dividend or
capital gains
distribution payable only in cash, a broker-dealer not affiliated
with Smith
Barney, as purchasing agent for Plan participants (the
"Purchasing Agent"), will
buy Common Stock in the open market, on the NYSE or elsewhere,
for the
participants' accounts. If, following the commencement of the
purchases and
before the Purchasing Agent has completed its purchases, the
market price
exceeds the net asset value of the Common Stock, the average per
share purchase
price paid by the Purchasing Agent may exceed the net asset value
of the Common
Stock, resulting in the acquisition of fewer shares than if the
dividend or
capital gains distribution had been paid in Common Stock issued
by the Portfolio
at net asset value. Additionally, if the market price exceeds the
net asset
value of shares before the Purchasing Agent has completed its
purchases, the
Purchasing Agent is permitted to cease purchasing shares and the
Portfolio may
issue the remaining shares at a price equal to the greater of (a)
net asset
value or (b) 95% of the then current market price. In a case
where the
Purchasing Agent has terminated open market purchases and the
Portfolio has
issued the remaining shares, the number of shares received by the
participant in
respect to the cash dividend or capital gains distribution will
be based on the
weighted average prices paid for shares purchased in the open
market and the
price at which the Portfolio issues the remaining shares. All
cash received as a
dividend or capital gains distribution will be applied to
purchase Common Stock
on the open market as soon as practicable after the payment date
of the dividend
or capital gains distribution, but in no event later than 30 days
after that
date, except when necessary to comply with applicable provisions
of the federal
securities laws.
The Transfer Agent maintains all shareholder accounts in the
Plan and
furnishes written confirmations of all transactions in each
account, including
information needed by a shareholder for personal and tax records.
The automatic
reinvestment of dividends and capital gains distributions will
not relieve Plan
participants of any income tax that may be payable on the
dividends or capital
gains distributions.
Common Stock in the account of each Plan participant will be
held by the
Transfer Agent in uncertificated form in the name of the Plan
participant, and
each shareholder's proxy will include those shares purchased
pursuant to the
Plan.
Plan participants are subject to no charge for reinvesting
dividends and
capital gains distributions. The Transfer Agent's fees for
handling the
reinvestment of dividends and capital gains distributions will be
paid by the
Portfolio. No brokerage charges apply with respect to shares of
Common Stock
issued directly by the Portfolio as a result of dividends or
capital gains
distributions payable either in Common Stock or in cash. Each
Plan participant
will, however, bear a proportion-
28
<PAGE>
Managed High Income Portfolio Inc.
- -----------------------------------------------------------------
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Dividends And Distributions; Dividend Reinvestment Plan
(continued)
- -----------------------------------------------------------------
- ---------------
ate share of brokerage commissions incurred with respect to open
market
purchases made in connection with the reinvestment of dividends
or capital gains
distributions.
Experience under the Plan may indicate that changes to it
are desirable.
The Portfolio reserves the right to amend or terminate the Plan
as applied to
any dividend or capital gains distribution paid subsequent to
written notice of
the change sent to participants at least 30 days before the
record date for the
dividend or capital gains distribution. The Plan also may be
amended or
terminated by the Transfer Agent, with the Portfolio's prior
written consent, on
at least 30 days' written notice to Plan participants. All
correspondence
concerning the Plan should be directed by mail to First Data
Investor Services
Group, Inc., P.O. Box 1376, Boston, Massachusetts 02104 or by
telephone at
1-800-331-1710.
- -----------------------------------------------------------------
- ---------------
Net Asset Value
- -----------------------------------------------------------------
- ---------------
The net asset value of shares of the Common Stock is
calculated as of the
close of regular trading on the NYSE, currently 4:00 p.m., New
York time, on
each day on which the NYSE is open for trading. The Portfolio
reserves the right
to cause its net asset value to be calculated on a less frequent
basis as
determined by the Portfolio's Board of Directors. For purposes of
determining
net asset value, futures contracts and options on futures
contracts will be
valued 15 minutes after the close of regular trading on the NYSE.
Net asset value per share of Common Stock is calculated by
dividing the
value of the Portfolio's total assets less liabilities. In
general, the
Portfolio's investments will be valued at market value, or in the
absence of
market value, at fair value as determined by or under the
direction of the
Portfolio's Board of Directors. Portfolio securities which are
traded primarily
on foreign exchanges are generally valued at the preceding
closing values of
such securities on their respective exchanges, except that when
an occurrence
subsequent to the time a value was so established is likely to
have changed such
value, then the fair market value of those securities will be
determined by
consideration of other factors by or under the direction of the
Board of
Directors. A security that is traded primarily on an exchange is
valued at the
last sale price on that exchange or, if there were no sales
during the day, at
the current quoted bid price. Over-the-counter securities are
valued on the
basis of the bid price at the close of business on each day.
Investments in U.S.
government securities (other than short-term securities) are
valued at the
average of the quoted bid and asked prices in the over-the-
counter market.
Short-term investments that mature in 60 days or less are valued
on the basis of
amortized cost (which involves
29
<PAGE>
Managed High Income Portfolio Inc.
- -----------------------------------------------------------------
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Net Asset Value (continued)
- -----------------------------------------------------------------
- ---------------
valuing an investment at its cost and, thereafter, assuming a
constant
amortization to maturity of any discount or premium, regardless
of the effect of
fluctuating interest rates on the market value of the investment)
when the Board
of Directors has determined that amortized cost is fair value.
The valuation of the Portfolio's assets is made by SBMFM
after consultation
with an independent pricing service (the "Service") approved by
the Portfolio's
Board of Directors. When, in the judgment of the Service, quoted
bid prices for
investments are readily available and are representative of the
bid side of the
market, these investments are valued at the mean between the
quoted bid prices
and asked prices. Investments for which, in the judgment of the
Service, no
readily obtainable market quotation is available, are carried at
fair value as
determined by the Service, based on methods that include
consideration of:
yields or prices of securities of comparable quality, coupon,
maturity and type;
indications as to values from dealers; and general market
conditions. The
Service may use electronic data processing techniques and/or a
matrix system to
determine valuations. The procedures of the Service are reviewed
periodically by
the officers of the Portfolio under the general supervision and
responsibility
of the Board of Directors, which may replace the Service at any
time if it
determines it to be in the best interests of the Portfolio to do
so.
- -----------------------------------------------------------------
- ---------------
Taxation
- -----------------------------------------------------------------
- ---------------
The following is a summary of the material federal tax
considerations
affecting the Portfolio and its shareholders; see the SAI for
further
discussion. In addition to the considerations described below and
in the SAI,
which are applicable to any investment in the Portfolio, there
may be other
federal, state, local or foreign tax considerations applicable to
particular
investors. Prospective shareholders are therefore urged to
consult their tax
advisors with respect to the consequences to them of an
investment in the
Portfolio.
The Portfolio has qualified, and intends to qualify each
year, as a
"regulated investment company" under Subchapter M of the Code. In
each taxable
year that the Portfolio so qualifies, the Portfolio will be
relieved of federal
income tax on that part of its investment company taxable income
(consisting
generally of taxable net investment income, net short-term
capital gain and net
realized gains from certain hedging transactions) and long-term
capital gain
that is distributed to its shareholders.
To qualify under Subchapter M of the Code, the Portfolio
must meet certain
30
<PAGE>
Managed High Income Portfolio Inc.
- -----------------------------------------------------------------
- ---------------
Taxation (continued)
- -----------------------------------------------------------------
- ---------------
requirements of the Code. In meeting these requirements, the
Portfolio may be
restricted in the selling of securities held by the Portfolio for
less than
three months and in the utilization of certain of the investment
techniques
described above under "Investment Objectives and Policies --
Investment
Techniques." As a regulated investment company, the Portfolio
will be subject to
a 4% non-deductible excise tax measured with respect to certain
undistributed
amounts of ordinary income and capital gain. The Portfolio
expects to pay the
dividends and make the distributions necessary to avoid the
application of this
excise tax.
The Portfolio's transactions, if any, in foreign currencies,
forward
contracts, options and futures contracts (including options and
forward
contracts on foreign currencies) will be subject to special
provisions of the
Code that, among other things, may affect the character of gains
and losses
recognized by the Portfolio (i.e., may affect whether gains or
losses are
ordinary or capital), accelerate recognition of income to the
Portfolio, defer
Portfolio losses and cause the Portfolio to be subject to
hyperinflationary
currency rules. These rules could therefore affect the character,
amount and
timing of distributions to shareholders. These provisions also
(1) will require
the Portfolio to mark-to-market certain types of its positions
(i.e., treat them
as if they were closed out) and (2) may cause the Portfolio to
recognize income
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 Portfolio will monitor its transactions,
will make the
appropriate tax elections and will make the appropriate entries
in its books and
records when it acquires any foreign currency, forward contract,
option, futures
contract or hedged investment so that (1) neither the Portfolio
nor its
shareholders will be treated as receiving a materially greater
amount of capital
gains or distributions than actually realized or received, (2)
these special
provisions will not prevent the Portfolio from using
substantially all of its
losses for the fiscal years in which the losses actually occur
and (3) the
Portfolio will continue to qualify as a regulated investment
company.
Dividends paid from the Portfolio's net investment income
and distributions
of the Portfolio's net realized short-term capital gains are
taxable to
shareholders of the Portfolio as ordinary income, regardless of
the length of
time shareholders have held shares of Common Stock and whether
the dividends or
distributions are received in cash or reinvested in additional
shares.
Distributions of net long-term capital gains, if any, will be
taxable as
long-term capital gains, whether received in cash or reinvested
in shares and
regardless of how long the shareholder has held the Portfolio
shares.
A shareholder of the Portfolio receiving dividends or
distributions in
additional shares pursuant to the Plan should be treated for
federal income tax
purposes as
31
<PAGE>
Managed High Income Portfolio Inc.
- -----------------------------------------------------------------
- ---------------
Stock Purchases And Tenders (continued)
- -----------------------------------------------------------------
- ---------------
receiving a distribution in an amount equal to the amount of
money that a
shareholder receiving cash dividends or distributions receives,
and should have
a cost basis in the shares received equal to that amount.
Investors considering buying shares just prior to a dividend
or capital
gain distribution should be aware that, although the price of
shares purchased
at that time may reflect the amount of the forthcoming
distribution, those who
purchase just prior to a distribution will receive a distribution
that will
nevertheless be taxable to them.
Each shareholder will receive an annual statement as to the
federal income
tax status of such shareholder's dividends and distributions from
the Portfolio
for the prior calendar year. Furthermore, shareholders will also
receive, if
appropriate, various written notices after the close of the
Portfolio's taxable
year regarding the federal income tax status of certain dividends
and
distributions that were paid (or that are treated as having been
paid) by the
Portfolio to its shareholders during the preceding year.
If a shareholder fails to furnish a correct taxpayer
identification number,
fails to report fully dividend or interest income, or fails to
certify that the
shareholder has provided a correct taxpayer identification number
and that the
shareholder is not subject to "backup withholding," the
shareholder may be
subject to a 31% "backup withholding" tax with respect to (1)
taxable dividends
and distributions and (2) the proceeds of any sales or
repurchases of shares of
Common Stock. An individual's taxpayer identification number is
such
individual's social security number. Corporate shareholders and
other
shareholders specified in the Code are or may be exempt from
backup withholding.
The backup withholding tax is not an additional tax and may be
credited against
a taxpayer's federal income tax liability.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN TAX CONSEQUENCES
AFFECTING THE
PORTFOLIO AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO
CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO
THEM OF AN
INVESTMENT IN THE PORTFOLIO.
32
<PAGE>
Managed High Income Portfolio Inc.
- -----------------------------------------------------------------
- ---------------
Description of Common Stock
- -----------------------------------------------------------------
- ---------------
No shares, other than those currently outstanding, are
offered for sale
pursuant to this Prospectus. All shares of Common Stock have
equal
non-cumulative voting rights and equal rights with respect to
dividends, assets
and liquidation. Shares of Common Stock will be fully paid and
non-assessable
when issued and have no preemptive, conversion or exchange
rights. A majority of
the votes cast at any meeting of shareholders is sufficient to
take or authorize
action, except for election of Directors or as otherwise provided
in the
Portfolio's Articles of Incorporation as described under "Certain
Provisions of
the Articles of Incorporation."
Under the rules of the NYSE applicable to listed companies,
the Portfolio
will be required to hold an annual meeting of shareholders in
each year. If the
Portfolio's shares are no longer listed on the NYSE (or any other
national
securities exchange the rules of which require annual meetings of
shareholders),
the Portfolio may decide not to hold annual meetings of
shareholders. See "Stock
Purchases and Tenders."
The Portfolio has no current intention of offering
additional shares,
except that additional shares may be issued under the Plan. See
"Dividends and
Distributions; Dividend Reinvestment Plan." Other offerings of
shares, if made,
will require approval of the Portfolio's Board of Directors and
will be subject
to the requirement of the 1940 Act that shares 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 Portfolio's outstanding
shares.
Common Stock
------------
Amount
Outstanding
Exclusive of Shares
Amount Held Held by
Portfolio for
by Portfolio for its Own
Account as of
Title of Class Shares Authorized its Own Account May
31, 1996
-------------- ----------------- ---------------- -------
- --------------
Common Stock 500,000,000 458,018,410.96
41,981,589.04
- -----------------------------------------------------------------
- ---------------
Stock Purchases And Tenders
- -----------------------------------------------------------------
- ---------------
Although shares of closed-end investment companies sometimes
trade at
premiums over net asset value, they frequently trade at
discounts. Since the
Portfolio's commencement of operations, the Common Stock has
traded primarily at
a slight discount from its net asset value per share. The
Portfolio cannot
predict whether the Common Stock will continue to trade above, at
or below net
asset value. The Portfolio believes that, if the Common Stock
trades at a
discount to net asset value, the share price will not adequately
reflect the
value of the Portfolio to investors and
33
<PAGE>
Managed High Income Portfolio Inc.
- -----------------------------------------------------------------
- ---------------
Stock Purchases And Tenders (continued)
- -----------------------------------------------------------------
- ---------------
that investors' financial interests will be furthered if the
price of the Common
Stock more closely reflects its net asset value. For these
reasons, the
Portfolio's Board of Directors currently intends to consider from
time to time
repurchases of Common Stock on the open market or in private
transactions or the
making of tender offers for Common Stock.
The Portfolio may repurchase shares of its Common Stock in
the open market
or in privately negotiated transactions when the Portfolio can do
so at prices
below their then current net asset value per share on terms that
the Board of
Directors believes represent a favorable investment opportunity.
In addition, the Board of Directors currently intends to
consider, at least
once a year, making an offer to each Common Stock shareholder of
record to
purchase at net asset value shares of Common Stock owned by the
shareholder.
Before authorizing any repurchase of Common Stock or tender
offer to the
Common Stock shareholders, the Portfolio's Board of Directors
would consider all
relevant factors, including the market price of the Common Stock,
its net asset
value per share, the liquidity of the Portfolio's securities
positions, the
effect an offer or repurchase might have on the Portfolio or its
shareholders
and relevant market conditions. Any offer would be made in
accordance with the
requirements of the 1940 Act and the Securities Exchange Act of
1934. Although
the matter will be subject to the review of the Board of
Directors, a tender
offer is not expected to be made if the anticipated benefit to
shareholders and
the Portfolio would not be commensurate with the anticipated cost
to the
Portfolio, or if the number of shares expected to be tendered
would not be
material.
- -----------------------------------------------------------------
- ---------------
Certain Provisions Of The Articles Of Incorporation
- -----------------------------------------------------------------
- ---------------
The Portfolio's Articles of Incorporation include provisions
that could
have the effect of limiting the ability of other entities or
persons to (i)
acquire control of the Portfolio, (ii) to cause it to engage in
certain
transactions or (iii) to modify its structure. These provisions
could have the
effect of depriving shareholders of an opportunity to sell their
shares of
Common Stock at a premium over prevailing market prices by
discouraging a third
party from seeking to obtain control of the Portfolio. The
provisions include
the classification of the Board of Directors and requirements for
the approval
of substantial majorities of the Portfolio's shareholders for
certain matters.
These provisions are set forth in detail in the SAI.
The Board of Directors has determined that the increased
voting
requirements required by the Articles of Incorporation, which are
generally
greater than the minimum requirements under Maryland law and the
1940 Act, are
in the best interests
34
<PAGE>
Managed High Income Portfolio Inc.
- -----------------------------------------------------------------
- ---------------
Certain Provisions Of The Articles Of Incorporation (continued)
- -----------------------------------------------------------------
- ---------------
of shareholders generally. Reference should be made to the
Articles of
Incorporation on file with the SEC for the full text of their
provisions.
- -----------------------------------------------------------------
- ---------------
Custodian, Transfer Agent And Dividend-Paying Agent And Registrar
- -----------------------------------------------------------------
- ---------------
PNC Bank, National Association ("PNC"), located at 17th and
Chestnut
Street, Philadelphia, Pennsylvania 19103, acts as custodian of
the Portfolio's
investments.
First Data Investor Services Group, Inc., located at One
Exchange Place,
Boston, Massachusetts 02109, serves as the Portfolio's transfer
agent,
dividend-paying agent and registrar. The Transfer Agent also
serves as agent in
connection with the Plan. Neither PNC nor the Transfer Agent
assists in or is
responsible for investment decisions involving assets of the
Portfolio.
Under the Custody Agreement, PNC holds the Portfolio's
assets in accordance
with the provisions of the 1940 Act. Under the Transfer Agency
and Registrar
Agreement, the Transfer Agent maintains the shareholder account
records for the
Portfolio, distributes dividends and distributions payable by the
Portfolio and
produces statements with respect to account activity for the
Portfolio and its
shareholders. The services to be provided by the Transfer Agent
as agent under
the Plan are described under "Dividends and Distributions;
Dividend Reinvestment
Plan."
- -----------------------------------------------------------------
- ---------------
Further Information
- -----------------------------------------------------------------
- ---------------
Further information concerning the Common Stock and the
Portfolio may be
found in the Registration Statement, of which this Prospectus and
the SAI
constitute a part, on file with the SEC.
No person has been authorized to give any information or
make any
representations not contained in this Prospectus and, if given or
made, such
information or representations must not be relied upon as having
been authorized
by the Portfolio or the Portfolio's investment adviser. This
Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy
any security
other than the shares of common stock, nor does it constitute an
offer to sell
or a solicitation of any offer to buy the shares of common stock
by anyone in
any jurisdiction in which the offer or solicitation would be
unlawful. 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 Portfolio since the date hereof. If any material
change occurs
while this Prospectus is required by law to be delivered,
however, this
Prospectus will be supplemented or amended accordingly.
35
<PAGE>
Managed High Income Portfolio Inc.
- -----------------------------------------------------------------
- ---------------
Appendix A
- -----------------------------------------------------------------
- ---------------
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
Aaa Bonds that are rated Aaa are judged to be of the best
quality, carry the
smallest degree of investment risk and are generally
referred to as "gilt
edge." Interest payments with respect to these bonds are
protected by a
large or by an exceptionally stable margin, and principal is
secure.
Although the various protective elements applicable to these
bonds are
likely to change, those changes are most unlikely to impair
the
fundamentally strong position of these bonds.
Aa Bonds that are rated Aa are judged to be of high quality by
all standards
and together with the Aaa group 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 other
elements may be
present that make the long-term risks appear somewhat larger
than in Aaa
securities.
A Bonds that 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 with respect to these bonds are
considered
adequate, but elements may be present that suggest a
susceptibility to
impairment sometime in the future.
Baa Bonds rated Baa are considered to be medium grade
obligations, that is,
they are neither highly protected nor poorly secured.
Interest payment 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. These bonds lack outstanding
investment
characteristics and may have speculative characteristics as
well.
Ba Bonds that 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
therefore not well
safeguarded during both good and bad times over the future.
Uncertainty of
position characterizes bonds in this class.
B Bonds that are rated B generally lack characteristics of
desirable
investments. 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 that are rated Caa are of poor standing. These issues
may be in
default or present elements of danger may exist with respect
to principal
or interest.
A-1
<PAGE>
Managed High Income Portfolio Inc.
- -----------------------------------------------------------------
- ---------------
Appendix A (continued)
- -----------------------------------------------------------------
- ---------------
Ca Bonds that 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 that 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 the numerical modifiers 1, 2 and 3 in each
generic rating
classification from Aa through B. The modifier 1 indicates that
the security
ranks in the higher end of its generic rating category; the
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.
DESCRIPTION OF S&P CORPORATE BOND RATINGS:
AAA Bonds rated AAA have the highest rating assigned by S&P to a
debt
obligation. Capacity to pay interest and repay principal is
extremely
strong.
AA Bonds rated AA have a very strong capacity to pay interest
and repay
principal and differ from the highest rated issues only in
small degree.
A Bonds rated A have a strong capacity to pay interest and
repay principal
although they are somewhat more susceptible to the adverse
effects of
changes in circumstances and economic conditions than bonds
in higher rated
categories.
BBB Bonds rated BBB are regarded as having an adequate capacity
to pay interest
and repay principal. Whereas they normally exhibit adequate
protection
parameters, adverse economic conditions or changing
circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal
for bonds in this category than for bonds in higher rated
categories.
BB, Bonds rated BB and B are regarded, on balance, as
predominantly speculative
B, with respect to capacity to pay interest and repay principal
in accordance
and with the terms of the obligation. BB represents a lower
degree of
CCC speculation than B and CCC 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
A-2
<PAGE>
Managed High Income Portfolio Inc.
- -----------------------------------------------------------------
- ---------------
Appendix A (continued)
- -----------------------------------------------------------------
- ---------------
C The rating C is reserved for income bonds on which no
interest is being
paid.
D Bonds rated D are in default, and payment of interest and/or
repayment of
principal is in arrears.
S&P's letter ratings may be modified by the addition of a
plus or a minus
sign, which is used to show relative standing within the major
rating
categories, except in the AAA-Prime Grade category.
A-3
MANAGED HIGH INCOME PORTFOLIO INC.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION
June 27, 1996
Managed High Income Portfolio Inc. (the "Portfolio") is a
diversified closed-end management investment company that seeks a
high level of current income with capital appreciation as a
secondary objective. Under normal conditions, in seeking its
investment objective, the Portfolio will invest at least 65% of
its assets in high-yielding corporate bonds, debentures and
notes. Up to 35% of its assets may be invested in common stock
or other equity or equity-related securities, including
convertible securities, preferred stock, warrants and rights.
Securities purchased by the Portfolio generally will be rated in
the lower categories of recognized ratings agencies, as low as C
by Moody's Investors Service, Inc. ("Moody's") or D by Standard &
Poor's Ratings Group ("S&P"), or in unrated securities that the
Portfolio's investment adviser deems of comparable quality. No
assurance can be given that the Portfolio will be able to achieve
its investment objective.
This Statement of Additional Information ("SAI") expands
upon and supplements the information contained in the current
prospectus of the Portfolio, dated June 27, 1996 , as
amended or supplemented from time to time (the "Prospectus"), and
should be read in conjunction with the Prospectus. The
Prospectus may be obtained from any Smith Barney Financial
Consultant or by writing or calling the Portfolio at the address
or telephone number set forth above. This SAI, although not
itself a prospectus, is incorporated by reference into the
Prospectus in its entirety.
No person has been authorized to give any information or to
make any representations not contained in the Prospectus or this
SAI and, if given or made, such information or representations
must not be relied upon as having been authorized by the
Portfolio or the Portfolio's investment adviser. The Prospectus
and this SAI do not constitute an offer to sell or a solicitation
of any offer to buy any security other than the shares of common
stock, nor does it constitute an offer to sell or a solicitation
of an offer to buy the shares of common stock by anyone in any
jurisdiction in which the offer or solicitation would be
unlawful. Neither the delivery of the Prospectus nor any sale
made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the
Portfolio since the date hereof. If any materials change occurs
while the Prospectus is required by law to be delivered, however,
the Prospectus or this SAI will be supplemented or amended
accordingly.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
Investment Objectives and Policies (see in the
Prospectus "Investment Objectives and Policies"
and Appendix A) 2
Portfolio Transactions and Turnover 9
Management of the Portfolio 10
Taxes (see in the Prospectus "Taxation") 14
Stock Purchases and Tenders (see in the Prospectus
"Stock Purchases and Tenders" and
"Description of Common Stock") 17
Additional Information (see in the Prospectus
"Custodian, Transfer Agent and Dividend-Paying
Agent and Registrar") 18
Financial Statements 19
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus discusses the Portfolio's investment
objectives and the policies it employs to achieve those
objectives. The following discussion supplements the description
of the Portfolio's investment policies in the Prospectus.
General
The Portfolio's primary investment objective is high current
income, with capital appreciation as a secondary objective. The
Portfolio seeks to achieve its objectives by investing at least
65% of its assets in high-yielding corporate bonds, debentures
and notes. Although the Portfolio may invest in securities of
any maturity, under current market conditions the Portfolio
intends that its portfolio of fixed-income securities will have
an average remaining maturity of between 5 and 10 years The
Portfolio's investment adviser, Smith Barney Mutual Funds
Management Inc. ("SBMFM"), may adjust the Portfolio's average
maturity when, based on interest rate trends and other market
conditions, it deems it appropriate to do so. Up to 35% of the
Portfolio's assets may be invested in common stock or other
equity or equity-related securities, including convertible
securities, preferred stock, warrants and rights. The
Portfolio's investment objective may not be changed without the
affirmative vote of the holders of a majority (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of
the Portfolio's outstanding voting shares. No assurance can be
given that the Portfolio's investment objectives will be
achieved.
The Portfolio may make equity investments in securities of
companies of any size depending on the relative attractiveness of
the company and the economic sector in which it operates.
Securities purchased by the Portfolio generally will be rated in
the lower categories of recognized rating agencies, as low as C
by Moody's or D by S&P, or, if unrated, will be securities that
SBMFM deems of comparable quality. However, the Portfolio will
not purchase securities rated lower than B by both Moody's and
S&P if, immediately after such purchase, more than 10% of its
total assets are invested in such securities. The Portfolio may
hold securities with higher ratings when the yield differential
between low-rated and higher-rated securities narrows and the
risk of loss may be reduced substantially with only a relatively
small reduction in yield. The Portfolio may also invest in
higher-rated securities when SBMFM believes that a more defensive
investment strategy is appropriate in light of market or economic
conditions. The Portfolio also may lend its portfolio securities
and purchase or sell securities on a when-issued or delayed-
delivery basis.
The Portfolio may invest up to 20% of its assets in the
securities of foreign issuers that are denominated in currencies
other than the U.S. dollar and may invest without limitation in
securities of foreign issuers that are denominated in U.S.
dollars. In order to mitigate the effects of uncertainty in
future exchange rates affecting the Portfolio's non-dollar
investments, the Portfolio may engage in currency exchange
transactions and currency futures contracts and related options
and purchase options on foreign currencies. The Portfolio also
may hedge against the effects of changes in the value of its
investments by entering into interest rate futures contracts and
related options.
Use of Ratings as Investment Criteria. In general, the
ratings of Moody's and S&P represent the opinions of those
agencies as to the quality of the securities and long-term
investments which they rate. It should be emphasized, however,
that such ratings are relative and subjective; they are not
absolute standards of quality and do not evaluate the market risk
of securities. These ratings will be used as initial criteria
for the selection of securities, but the Portfolio also will rely
upon the independent advice of SBMFM. Among the factors that
will also be considered by SBMFM in evaluating potential
investments are the long-term ability of the issuer to pay
principal and interest and general economic trends. To the
extent the Portfolio invests in lower-rated and comparable
unrated securities, the Portfolio's achievement of its investment
objectives may be more dependent on SBMFM's credit analysis of
such securities than would be the case for a portfolio consisting
entirely of higher-rated securities. The Appendix to the
Prospectus contains information concerning the ratings of Moody's
and S&P and their significance.
Subsequent to its purchase by the Portfolio, a security may
cease to be rated or its rating may be reduced below the rating
given at the time the security was acquired by the Portfolio.
Neither event will require the sale of such securities by the
Portfolio, but SBMFM will consider such event in its
determination of whether the Portfolio should continue to hold
the security. In addition, to the extent the ratings change as a
result of changes in the rating systems or due to a corporate
restructuring of Moody's or S&P, the Portfolio will attempt to
use comparable ratings as standards for its investments in
accordance with its investment objectives and policies.
As more fully described in the Prospectus, the markets in
which medium- and low-rated securities or comparable unrated
securities are traded generally are more limited than those in
which higher-rated securities are traded. Accordingly, the
Portfolio may be limited as to securities eligible for purchase
and may have difficulty obtaining accurate market quotations for
portfolio securities, or disposing of portfolio securities at
fair value. The market for certain lower-rated and comparable
unrated securities is relatively new and has not fully weathered
a major economic recession. Any economic downturn could
adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon.
Investment Techniques
The Prospectus discusses the investment objectives of the
Portfolio and the polices to be employed to achieve those
objectives. This section contains supplemental information
concerning the types of securities and other instruments in which
the Portfolio may invest, the investment policies that the
Portfolio may utilize, and certain risks attendant to such
investments and policies.
Money Market Instruments. For defensive purposes, the
Portfolio may invest, without limitation, in short-term money
market instruments rated in the two highest short-term ratings
categories by Moody's or S&P, the equivalent from another major
rating service or comparable unrated securities. Money market
securities in which the Portfolio typically expects to invest
include: U.S. government securities; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances
of U.S. or foreign banks); commercial paper; and repurchase
agreements.
Futures Contracts and Options on Futures Contracts. As set
forth in the Prospectus, the Portfolio may enter into interest
rate and currency futures contracts and may purchase and sell put
and call options on such futures contracts. The Portfolio will
enter into such transactions for hedging purposes or for other
appropriate risk management purposes permitted under the rules
and regulations of the Commodity Futures Trading Commission (the
"CFTC") and the Securities and Exchange Commission (the "SEC").
Parties to a futures contract must make initial "margin"
deposits to secure performance of the contract. There are also
requirements to make "variation" margin deposits from time to
time as the value of the futures contract fluctuates. The
Portfolio is not a commodity pool and, in accordance with CFTC
regulations currently in effect, may enter into futures contracts
or options on futures contacts (as described below) only for
"bona fide hedging" purposes (as defined in CFTC regulations)
and, in addition, for other purposes, provided that aggregate
initial margin and premiums required to establish such positions
other than those considered by the CFTC to be for "bona fide
hedging" purposes will not exceed 5% of the fair market value of
the Portfolio's total assets, after taking into account
unrealized profits and unrealized losses on such contracts. In
the event that the Portfolio enters into short positions in
futures contracts as a hedge against a decline in the value of
the Portfolio's securities, the value of such futures contracts
may not exceed the total market value of the Portfolio's
investments. In addition, certain provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), may limit the
extent to which the Portfolio may enter into futures contracts or
engage in options transactions. See "Taxes."
Under regulations of the CFTC currently in effect, which may
change from time to time, with respect to futures contracts to
purchase securities, call options on futures purchased by the
Portfolio and put options on futures written by the Portfolio,
the Portfolio will set aside in a segregated account cash, U.S.
government securities or other U.S. dollar-denominated, high
quality, short-term or other money market instruments at least
equal to the value of instruments underlying such futures
contracts less the amount of initial margin on deposit for such
contracts. The current view of the staff of the SEC is that the
Portfolio's positions in futures contracts as well as options on
futures written by it must be collateralized with cash or certain
liquid assets held in a segregated account or covered in order to
eliminate any potential leveraging. Under interpretations of the
SEC currently in effect, which may change from time to time, a
"covered" call option means that so long as the Portfolio is
obligated to the writer of the option, it will own (1) the
underlying instruments subject to the option, (2) instruments
convertible or exchangeable into the instruments subject to the
option or (3) a call option on the relevant instruments with an
exercise price no higher than the exercise price on the call
option written.
The Portfolio may either accept or make delivery of cash or
the underlying instrument specified at the expiration of a
futures contact or, prior to expiration, enter into a closing
transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to futures contracts
are effected on the exchange on which the contract was entered
into (or a linked exchange).
The Portfolio may purchase and write put and call options on
futures contracts in order to hedge all or a portion of its
investments and may enter into closing purchase transactions with
respect to options written by the Portfolio in order to terminate
existing positions. There is no guarantee that such closing
transactions can be effected at any particular time or at all.
In addition, daily limits on price fluctuations on exchanges on
which the Portfolio conducts its futures and options transactions
may prevent the prompt liquidation of positions at the optimal
time, thus subjecting the Portfolio to the potential of greater
losses.
An option on a futures contract, as contrasted with the
direct investment in such a contract, gives the purchaser of the
option the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at
any time on or before the expiration date of the option. Upon
exercise of an option, the delivery of the futures position by
the writer of the option to the holder of the option will be
accomplished by delivery of the accumulated balance in the
writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the
case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract. The
potential loss related to the purchase of an option on a futures
contract is limited to the premium paid for the option (plus
transaction costs). With respect to options purchased by the
Portfolio, there are no daily cash payments made by the Portfolio
to reflect changes in the value of the underlying contract;
however, the value of the option does change daily and that
change would be reflected in the net asset value of the
Portfolio.
While the Portfolio may enter into futures contracts and
options on futures contracts for bona fide hedging and other
appropriate risk management purposes, the use of futures
contracts and options on futures contracts might result in a
poorer overall performance for the Portfolio than if it had not
engaged in any such transactions. If, for example, the Portfolio
had insufficient cash, it may have to sell a portion of its
underlying portfolio of securities in order to meet daily
variation margin requirements on its futures contracts or options
on futures contracts at a time when it may be disadvantageous to
do so. There may be an imperfect correlation between the
Portfolio's investments and futures contracts or options on
futures contracts entered into by the Portfolio, which may
prevent the Portfolio from achieving the intended hedge or expose
the Portfolio to risk of loss. Further, the Portfolio's use of
futures contracts and options on futures contracts to reduce risk
involves costs and will be subject to SBMFM's ability to predict
correctly changes in interest rate relationships or other
factors. No assurance can be given that SBMFM's judgment in this
respect will be correct.
Lending Securities. The Portfolio is authorized to lend
securities it holds to brokers, dealers and other financial
institutions, other than SBMFM and its affiliates. Such loans
may not exceed 20% of the Portfolio's assets taken at value. By
lending its securities, the Portfolio can increase its income by
continuing to receive interest on the loaned securities, by
investing the cash collateral in short-term instruments or by
obtaining yield in the form of interest paid by the borrower when
U.S. government securities are used as collateral. The Portfolio
will adhere to the following conditions whenever it lends its
securities: (1) the Portfolio must receive at least 100% cash
collateral or equivalent securities from the borrower, which will
be maintained by daily marking-to-market; (2) the borrower must
increase the collateral whenever the market value of the
securities loaned rises above the level of the collateral; (3)
the Portfolio must be able to terminate the loan at any time; (4)
the Portfolio must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions on the
loaned securities, and any increase in market value; (5) the
Portfolio may pay only reasonable custodian fees in connection
with the loan; and (6) voting rights on the loaned securities may
pass to the borrower, except that, if a material event adversely
affecting the investment in the loaned securities occurs, the
Portfolio's Board of Directors must terminate the loan and regain
the Portfolio's right to vote the securities. From time to time,
the Portfolio may pay a part of the interest earned from the
investment of collateral received for securities loaned to the
borrower and/or a third party that is unaffiliated with the
Portfolio and that is acting as a "finder."
Currency Exchange Transactions and Options on Foreign
Currencies. In order to protect against uncertainty in the level
of future exchange rates, the Portfolio may engage in currency
exchange transactions and purchase exchange-traded put and call
options on foreign currencies. The Portfolio will conduct its
currency exchange transactions either on a spot (i.e., cash)
basis at the rate prevailing in the currency exchange market or
through entering into forward contacts to purchase or sell
currencies.
The Portfolio's dealings in forward currency exchange
transactions will be limited to hedging involving either specific
transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward currency contracts with respect to
specific receivables or payables of the Portfolio generally
arising in connection with the purchase or sale of its
securities. Position hedging, generally, is the sale of forward
currency contracts with respect to portfolio security positions
denominated or quoted in the currency. The Portfolio may not
position hedge with respect to a particular currency to an extent
greater than the aggregate market value at any time of the
security or securities held in its portfolio denominated or
quoted in or currently convertible (such as through exercise of
an option or consummation of a forward currency contract) into
that particular currency. If the Portfolio enters into a
transaction hedging or position hedging transaction, it will
cover the transaction through one or more of the following
methods: (a) ownership of the underlying currency or an option to
purchase such currency; (b) ownership of an option to enter into
an offsetting forward currency contract; (c) entering into a
forward contract to purchase currency being sold or to sell
currency being purchased, provided that such covering contract is
itself covered by any one of these methods unless the covering
contract closes out the first contract; or (d) depositing into a
segregated account with the custodian or a sub-custodian of the
Portfolio cash or readily marketable securities in an amount
equal to the value of the Portfolio's total assets committed to
the consummation of the forward currency contract and not
otherwise covered. In the case of transaction hedging,
securities placed in the account must be liquid debt securities.
In any case, if the value of the securities placed in the
segregated account declines, additional cash or securities will
be placed in the account so that the value of the account will
equal the above amount. Hedging transactions may be made from
any foreign currency into dollars or into other appropriate
currencies.
At or before the maturity of a forward contract, the
Portfolio may sell a portfolio security and make delivery of the
currency, or retain the security and offset its contractual
obligation to deliver the currency by purchasing a second
contract pursuant to which the Portfolio will obtain, on the same
maturity date, the same amount of the currency which it is
obligated to deliver. If the Portfolio retains the portfolio
security and engages in an offsetting transaction, the Portfolio,
at the time of execution of the offsetting transaction, will
incur a gain or loss to the extent movement has occurred in
forward contract prices. Should forward prices decline during
the period between the Portfolio's entering into a forward
contract for the sale of a currency and the date it enters into
an offsetting contract for the purchase of the currency, the
Portfolio will realize a gain to the extent that the price of the
currency it has agreed to sell exceeds the price of the currency
it has agreed to purchase. Should forward prices increase, the
Portfolio will suffer a loss to the extent the price of the
currency that it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
The cost to the Portfolio of engaging in currency
transactions varies with factors such as the currency involved,
the length of the contract period and the market conditions then
prevailing. Because transactions in currency exchange are
usually conducted on a principal basis, no fees or commissions
are involved. The use of forward currency contracts does not
eliminate fluctuations in the underlying prices of the
securities, but it does establish a rate of exchange that can be
achieved in the future. In addition, although forward currency
contacts limit the risk of loss due to a decline in the value of
the hedged currency, at the same time, they limit any potential
gain that might result should the value of the currency increase.
The Portfolio may purchase put options on a foreign currency
in which securities held by the Portfolio are denominated to
protect against a decline in the value of the currency in
relation to the currency in which the exercise price is
denominated. The Portfolio may purchase a call option on a
foreign currency to hedge against an adverse exchange rate of the
currency in which a security that it anticipates purchasing is
denominated in relation to the currency in which the exercise
price is denominated. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher
than the spot price of the currency at the time the option
expires. Call options convey the right to buy the underlying
currency at a price which is expected to be lower than the spot
price of the currency at the time the option expires.
The Portfolio may use foreign currency options under the
same circumstances that it could use forward currency exchange
transactions. A decline in the dollar value of a foreign
currency in which the Portfolio's securities are denominated, for
example, will reduce the dollar value of the securities, even if
their value in the foreign currency remains constant. In order
to protect against such diminution in the value of securities it
holds, the Portfolio may purchase put options on the foreign
currency. If the value of the currency does decline, the
Portfolio will have the right to sell the currency for a fixed
amount in dollars and will thereby offset, in whole or in part,
the adverse effect on its securities that otherwise would have
resulted. Conversely, if a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby potentially increasing the cost of the
securities, the Portfolio may purchase call options on the
particular currency. The purchase of these options could offset,
at least partially, the effects of the adverse movements in
exchange rates. The benefit to the Portfolio derived from
purchases of foreign currency options, like the benefit derived
from other types of options, will be reduced by the amount of the
premium and related transaction costs. In addition, if currency
rates do not move in the direction or to the extent anticipated,
the Portfolio could sustain losses on transactions in foreign
currency options that would require it to forego a portion or all
of the benefits of advantageous changes in the rates. Options on
foreign currencies purchased by the Portfolio may be traded on
domestic and foreign exchanges or traded over-the-counter.
Investment Restrictions
The investment restrictions numbered 1 through 12 below have
been adopted by the Portfolio as fundamental investment
restrictions that may not be changed without the prior approval
of the holders of a majority of the Portfolio's outstanding
voting securities. A "majority of the Portfolio's outstanding
voting securities" for this purpose means the lesser of (1) 67%
or more of the shares of the Portfolio's Common Stock present at
a meeting of shareholders, if the holders of 50% of the
outstanding shares are present or represented by proxy at the
meetings, or (2) more than 50% of the outstanding shares.
Investment restrictions numbered 13 and 14 may be changed by vote
of a majority of the Board of Directors at any time. For
purposes of the restrictions listed below, all percentage
limitations apply immediately after a purchase or initial
investment, and any subsequent change in applicable percentage
resulting from market fluctuations will not require elimination
of any security from the portfolio.
The investment policies adopted by the Portfolio prohibit it
from:
1. Purchasing the securities of any issuer (other than
U.S. government securities) if, as a result, more than 5% of the
value of the Portfolio's total assets would be invested in the
securities of the issuer, except that up to 25% of the value of
the Portfolio's total assets may be invested without regard to
this 5% limitation.
2. Purchasing more than 10% of the voting securities of
any one issuer (other than U.S. government securities), except
that up to 25% of the value of the Portfolio's total assets may
be invested without regard to the 10% limitation.
3. Purchasing securities on margin, except that the
Portfolio may obtain any short-term credits necessary for the
clearance of purchases and sales of securities. For purposes of
this restriction, the deposit or payment of initial or variation
margin in connection with futures contracts or related options
will not be deemed to be a purchase of securities on margin.
4. Making short sales of securities or maintaining a
short position, except that the Portfolio may engage in short
sales "against the box."
5. Borrowing money, except that (a) the Portfolio may
borrow from banks for temporary or emergency (not leveraging)
purposes in an amount not exceeding 10% of the value of the
Portfolio's total assets (including the amount borrowed) valued
at the time the borrowing is made and (b) the Portfolio may enter
into futures contacts. Whenever borrowings described in (a)
exceed 5% of the value of the Portfolio's total assets, the
Portfolio will not make any additional investments.
6. Pledging, hypothecating, mortgaging or otherwise
encumbering more than 10% of the value of the Portfolio's total
assets. For purposes of this restriction, (a) the deposit of
assets in escrow in connection with the writing of options, the
purchase of securities on a when-issued or delayed-delivery basis
and the entry into forward currency contracts and securities
lending transactions and (b) collateral arrangements with respect
to options transactions and margin for futures contracts and
options on futures contracts, will not be deemed to be pledges of
the Portfolio's assets.
7. Underwriting the securities of other issuers, except
insofar as the Portfolio may be deemed an underwriter under the
Securities Act of 1933, as amended (the "1933 Act"), by virtue of
disposing of portfolio securities.
8. Purchasing or selling real estate or interests in real
estate, except that the Portfolio may purchase and sell
securities that are secured by real estate or interests in real
estate and may purchase securities issued by companies that
invest or deal in real estate.
9. Investing in commodities, except that the Portfolio may
invest in futures contracts and options on futures contracts and
options on currencies as described under "Investment Objectives
and Management Policies."
10. Making loans to others, except through the purchase of
qualified debt obligations, the entry into repurchase agreements
and loans of portfolio securities consistent with the Portfolio's
investment objectives and policies.
11. Investing in securities of other investment companies
registered or required to be registered under the 1940 Act,
except as they may be acquired as part of a merger,
consolidation, reorganization, acquisition of assets or an offer
of exchange or to the extent permitted by the 1940 Act.
12. Purchasing any securities which would cause more than
25% of the value of the Portfolio's total assets at the time of
purchase to be invested in the securities of issuers conducting
their principal business activities in the same industry,
provided that there shall be no limit on the purchase of U.S.
government securities.
13. Purchasing illiquid securities (such as repurchase
agreements with maturities in excess of seven days) or other
securities that are not readily marketable if more than 15% of
the total assets of the Portfolio would be invested in such
securities.
14. Making investments for the purpose of exercising
control or management. This restriction shall not limit the
Portfolio's ability to participate on committees seeking to
include the reorganization of portfolio companies.
PORTFOLIO TRANSACTIONS AND TURNOVER
Portfolio Transactions. The Portfolio's securities
ordinarily are purchased from and sold to parties acting as
either principal or agent. Newly issued securities normally are
purchased directly from the issuer or from an underwriter acting
as principal. Other purchases and sales usually are placed with
those dealers from which it appears the best price or execution
will be obtained; those dealers may be acting as either agents or
principal. Usually no brokerage commissions, as such, are paid
by the Portfolio for purchases and sales undertaken through
principal transactions, although the price paid usually includes
an undisclosed compensation to the dealer acting as agent. The
purchase price paid by the Portfolio to underwriters of newly
issued securities usually includes a concession paid by the
issuer to the underwriter, and purchases of after-market
securities from dealers normally are executed at a price between
the bid and asked prices. The Portfolio paid $38,851 in
brokerage commissions for the fiscal year ended February 29,
1996.
Allocation of transactions, including their frequency, to
various dealers is determined by SBMFM in its best judgment and
in a manner deemed fair and reasonable to shareholders. The
primary considerations are availability of the desired security
and the prompt execution of orders in an effective manner at the
most favorable prices. Subject to these considerations, dealers
that provide supplemental investment research and statistical or
other services to SBMFM may receive orders for portfolio
transactions by the Portfolio. Information so received is in
addition to, and not in lieu of, services required to be
performed by SBMFM, and the fees of SBMFM are not reduced as a
consequence of their receipt of such supplemental information.
Such information may be useful to SBMFM in serving both the
Portfolio and other clients and, conversely, supplemental
information obtained by the placement of business of other
clients may be useful to SBMFM in carrying out its obligations to
the Portfolio.
The Portfolio will not purchase securities during the
existence of any underwriting or selling group relating thereto
of which Smith Barney or its affiliates are members, except to
the extent permitted by the SEC. Under certain circumstances,
the Portfolio may be at a disadvantage because of this limitation
in comparison with other investment companies which have a
similar investment objective but which are not subject to such
limitation.
While investment decisions for the Portfolio are made
independently from those of the other accounts managed by SBMFM,
investments of the type the Portfolio may make also may be made
by those other accounts. When the Portfolio and one or more
other accounts managed by SBMFM are prepared to invest in, or
desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by
SBMFM to be equitable to each. In some cases, this procedure may
adversely affect the price paid or received by the Portfolio or
the size of the position obtained or disposed of by the
Portfolio.
The Portfolio's Board of Directors will review periodically
the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were
reasonable in relation to the benefits received by the Portfolio.
Portfolio Turnover. The portfolio turnover rate (the lesser
of the Portfolio's purchases or sales of portfolio securities
during the last fiscal year, excluding any security the maturity
of which at the time of acquisition is one year or less, divided
by the average monthly value of portfolio securities) generally
is not expected to exceed 150%, but the turnover rate will not be
a limiting factor whenever the Portfolio deems it desirable to
sell or purchase securities. For the fiscal year ended February
29, 1996, the portfolio turnover rate was 73%.
MANAGEMENT OF THE PORTFOLIO
Directors and Executive Officers of the Portfolio
The overall management of the business and affairs of the
Portfolio is vested with its Board of Directors. The Board of
Directors approves all significant agreements between the
Portfolio and persons or companies furnishing services to it,
including the Portfolio's agreements with its investment adviser
and administrator, custodian, transfer agent, dividend paying
agent, registrar and plan agent. The day-to-day operations of
the Portfolio are delegated to its officers and to SBMFM, subject
always to the investment objectives and polices of the Portfolio
and to general supervision by the Portfolio's Board of Directors.
The Directors and Executive Officers of the Portfolio, their
addresses and information as to their principal business
occupations during the past five years are shown in the table
below:
<TABLE>
<S> <C> <C>
Positions Held Principal Occupations
Name and Address With the Portfolio During Past 5 Years
and Age
*Heath B. McLendon Chairman of the Managing Director of
388 Greenwich Street Board of Smith Barney Inc.
New York, NY 10013 Directors, Chief ("Smith Barney);
Executive Officer Chairman of Smith
Barney Strategy
Advisers Inc.; Prior
to July 1993, Senior
Executive Vice
President of Shearson
Lehman Brothers Inc.
("Shearson Lehman
Brothers"); Vice
Chairman of Shearson
Asset Management, a
member of the Asset
Management Group of
Shearson Lehman
Brothers; age 63.
Paolo M. Cucchi Director Dean of the College
Drew University of Liberal Arts at
College of Liberal Drew University; age
Arts 54.
Madison, NJ 07940
Alessandro di Director Retired; Former
Montezemolo Chairman of the Board
200 Murray Place and Chief Executive
P.O. Box 5057 Officer of Marsh &
Southampton, NY McLennan, Inc.; age
11969 77.
Andrea Farace Director President and
Trace International Director of Trace
Holdings, Inc. International
375 Park Avenue 11th Holdings, Inc.; Prior
Floor to December 1994,
New York, NY 10152 Executive Vice
President and
Managing Director;
Prior to March 1993,
Senior Vice
President; age 40.
Paul M. Hardin Director Chancellor Emeritus
12083 Morehead and Professor of Law
Chapel Hill, NC for the University of
27514-8426 North Carolina at
Chapel Hill; Prior to
July 1995, Chancellor
and Professor of Law;
age 64.
George M. Pavia Director Senior Partner, Pavia
600 Madison Avenue & Harcourt,
New York, NY 10022 Attorneys; age 68.
James Crisona Director emeritus Retired; former
118 East 60th Street Justice of the
New York, New York Supreme Court of the
10022 State of New York;
age 88.
Jessica Bibliowicz President Executive Vice
388 Greenwich Street President of Smith
New York, NY 10013 Barney; Prior to
1994, Director of
Sales and Marketing
for Prudential Mutual
Funds; age 36.
John C. Bianchi Vice President and Managing Director of
388 Greenwich Street Investment Officer SBMFM; prior to July
New York, NY 10013 1993, Managing
Director of Shearson
Lehman Advisors, an
investment advisory
affiliate of Shearson
Lehman Brothers; age
40.
Lewis E. Daidone Senior Vice Managing Director of
388 Greenwich Street President and Smith Barney;
New York, NY 10013 Treasurer Director and Senior
Vice President SBMFM;
age 38.
Christina T. Sydor Secretary Managing Director of
388 Greenwich Street Smith Barney. General
New York, NY 10013 Counsel and Secretary
of SBMFM; age 44.
</TABLE>
* "Interested person" of the Portfolio (as defined in the 1940
Act).
Director and/or trustee of other registered investment
companies with which Smith Barney is affiliated.
The Portfolio pays each of its Directors who is not a
director, officer or employee of SBMFM, or any of its affiliates,
an annual fee of $5,000 plus $500 for each in-person meeting and
$100 for each telephonic meeting. Each Director emeritus is paid
an annual fee of $2,500 plus $250 for each in-person meeting and
$50 for each telephonic meeting. In addition, the Portfolio will
reimburse its Directors for travel and out-of-pocket expenses
incurred in connection with Board of Directors meetings.
For the fiscal year ended February 29, 1996, the Directors
of the Portfolio were paid the following compensation.
<TABLE>
<S> <C> <C>
Aggregate Aggregate
Director(*) Compensation Compensation from
from the Portoflio the Smith Barney
Mutual Funds
Paolo Cucchi (2) $7,100 $17,700
Alessandro di 7,100 17,700
Montezemolo (2)
Andrea Farace (1) 7,100 7,100
Paul Hardin (12) 7,100 68,200
Heath McLendon (41) ----- ------
George Pavia (2) 7,100 17,700
James Crisona (9) 3,550 26,400
</TABLE>
* Number of Funds for which Director serves within Smith Barney
Mutual Funds.
Director emeritus may attend meetings but has no voting rights.
Principal Stockholders. There are no persons known to the
Portfolio to be control persons of the Portfolio, as such term is
defined in Section 2(a)(9) of the 1940 Act. There is no person
known to the Portfolio to hold beneficially more than 5% of the
outstanding shares of the Common Stock except as set forth below.
The following person is the only person holding more than 5% of
the outstanding shares of Common Stock as of May 31, 1996.
<TABLE>
<S> <C> <C>
Amount of Percent of
Name and Address Record Common
of Record Owner Ownership Stock
Outstandin
g
Cede & Co. 41,409,618 98.64%
as Nominee for The Depository Trust
Company
P.O. Box 20
Bowling Green Station
New York, New York 10004
</TABLE>
Of the shares held of record by Cede & Co., approximately
32,326,007 representing approximately 77.00% of the outstanding
shares of Common Stock, were held by The Depository Trust Company
as nominee for Smith Barney, representing accounts for which
Smith Barney has discretionary and non-discretionary authority.
As of May 31, 1996, the Directors and Officers of the
Portfolio, as a group, beneficially owned less than 1% of the
Portfolio's outstanding shares of Common Stock.
Investment Adviser and Administrator -- SBMFM
SBMFM serves as investment adviser to the Portfolio pursuant
to a written agreement dated July 30, 1993 (the "Advisory
Agreement"), a form of which was most recently approved by the
Board of Directors, including a majority of those Directors who
are not "interested persons" of the Portfolio or SBMFM ("Non-
Interested Directors"), on November 7, 1995. Unless terminated
sooner, the Advisory Agreement will continue for successive
annual periods thereafter, provided that such continuance is
specifically approved at least annually: (1) by a majority vote
of the Non-Interested Directors cast in person at a meeting
called for the purpose of voting on such approval; and (2) by the
Board of Directors or by a vote of a majority of the outstanding
shares of Common Stock. SBMFM provides investment advisory and
management services to investment companies affiliated with Smith
Barney. Smith Barney is a wholly-owned subsidiary of Smith
Barney Holdings Inc. ("Holdings"), which is in turn a wholly-
owned subsidiary of Travelers Group Inc. ("Travelers"), a
diversified financial services holding company engaged through
its subsidiaries principally in four business segments:
Investment Services, Consumer Finance Services, Life Insurance
Services and Property & Casualty Insurance Services. SBMFM pays
the salary of any officer or employee who is employed by both it
and the Portfolio. SBMFM bears all expenses in connection with
the performance of its services as investment adviser. For
services rendered to the Portfolio, SBMFM receives from the
Portfolio a fee, computed and paid monthly at the annual rate of
0.90% of the value of the Portfolio's average daily net assets.
For the fiscal year ended February 29, 1996, total investment
advisory fees paid by the Portfolio amounted to $4,253,885.
Prior to July 31, 1993, the Portfolio was party to an
investment advisory agreement with Shearson Lehman Brothers on
behalf of Shearson Lehman Advisors, a member of the Asset
Management group of Shearson Lehman Brothers. For services
rendered in accordance with such agreement, the Portfolio paid a
monthly fee at the annual rate of 0.90% of the value of its
average daily net assets.
Under the Advisory Agreement, SBMFM will not be liable for
any error of judgment or mistake of law or for any loss suffered
by the Portfolio in connection with the Advisory Agreement,
except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of SBMFM in the performance of its
duties or from reckless disregard of its duties and obligations
under the Advisory Agreement. The Advisory Agreement is
terminable by vote of the Board of Directors or by the holders of
a majority of the Common Stock, at any time without penalty, on
60 days' written notice to SBMFM. The Advisory agreement may also
be terminated by SBMFM on 90 days' written notice to the
Portfolio. The Advisory Agreement terminates automatically upon
its assignment.
SBMFM also serves as administrator to the Portfolio pursuant
to a written agreement dated May 18, 1994 (the "Administration
Agreement"), which was last approved by the Board of Directors of
the Portfolio, including a majority of the Non-Interested
Directors, on November 7, 1995. Pursuant to the Administration
Agreement, SBMFM pays the salaries of all officers and employees
who are employed both by it and the Portfolio, assists in
providing accounting, financial and tax support relating to
portfolio management, prepares and coordinates communications to
shareholders and provides the Portfolio with certain legal,
accounting and financial reporting and corporate secretarial
services. As compensation for SBMFM's services, the Portfolio
pays a fee, computed daily and paid monthly, at the annual rate
of 0.20% of the Portfolio's average daily net assets. For the
fiscal year ended February 29, 1996, total administration fees
paid by the Portfolio amounted to $945,308.
Pursuant to the Administration Agreement, SBMFM will
exercise its best judgment in rendering services to the
Portfolio. SBMFM will not be liable for any error of judgment or
mistake of law or for any loss suffered by the Portfolio in
connection with the matters to which the Administration Agreement
relates, except by reason of SBMFM's reckless disregard of
obligations and duties under the Administration Agreement.
The Administration Agreement will continue automatically for
successive annual periods provided that such continuance is
approved at least annually by the Board of Directors of the
Portfolio, including a majority of the Non-Interested Directors,
by vote cast in person at a meeting called for the the purpose of
voting such approval. The Agreement is terminable, without
penalty, upon 60 days' written notice, by the Board of Directors
of the Portfolio or by vote of holders of a majority of the
Portfolio's shares of Common Stock, or upon 90 days' written
notice by SBMFM.
The Portfolio bears expenses incurred in its operation,
including: fees of the investment adviser and administrator;
taxes, interest, brokerage fees and commissions, if any; fees of
Directors who are not officers, directors, shareholders or
employees of Smith Barney; SEC fees and state blue sky
qualification fees; charges of the custodian; transfer and
dividend disbursing agent's fees; certain insurance premiums;
outside auditing and legal expenses; costs of any independent
pricing service; costs of maintaining corporate existence; cost
attributable to investor services (including allocated telephone
and personnel expenses); costs of preparation and printing of
prospectuses and statements of additional information for
regulatory purposes and for distribution to shareholders;
shareholders' reports and corporate meetings of the officers,
Board of Directors and shareholders of the Portfolio.
TAXES
The discussion set out below of tax considerations generally
affecting the Portfolio and its shareholders is intended to be
only a summary and is not intended as a substitute for careful
tax planning by prospective shareholders.
Taxation of the Portfolio and its Investments
The Portfolio intends to qualify as a "regulated investment
company" under Subchapter M of the Code. If it qualifies as a
regulated investment company, the Portfolio will pay no federal
income taxes on its taxable net investment income (that is,
taxable income other than net realized capital gains) and its net
realized capital gains that are distributed to shareholders. To
qualify under Subchapter M of the Code, the Portfolio must, among
other things: (1) distribute to its shareholders at least 90% of
its taxable net investment income (which, for this purpose,
consists of taxable net investment income and net realized short-
term capital gains); (2) derive 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
securities, or other income (including, but not limited to, gains
from options, futures, and forward contracts) derived with
respect to the Portfolio's business of investing in securities;
(3) derive less than 30% of its annual gross income from the sale
or other disposition of securities, options, futures or forward
contracts held for less than three months; and (4) diversify its
holdings so that, at the end of each fiscal quarter of the
Portfolio (a) at least 50% of the market value of the Portfolio's
assets is represented by cash, U.S. government securities and
other securities, with these other securities limited, with
respect to any one issuer, to an amount not greater than 5% of
the value of the Portfolio's assets and not greater than 10% of
the outstanding voting securities of the issuer, and (b) not more
than 25% of the market value of the Portfolio's assets is
invested in the securities of any one issuer (other than U.S.
government securities or securities of other regulated investment
companies) or of two or more issuers that the Portfolio controls
and that are determined to be in the same or similar trades or
businesses or related trades or businesses. In meeting these
requirements, the Portfolio may be restricted in the selling of
securities held by the Portfolio for less than three months and
in the utilization of certain of the investment techniques
described above under "Investment Objectives and Policies --
Investment Techniques." As a regulated investment company, the
Portfolio will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of
ordinary income and capital gains. The Portfolio expects to pay
the dividends and make the distributions necessary to avoid the
application of this excise tax.
The Portfolio's transactions, if any, in foreign currencies,
forward contracts, options and futures contracts (including
options and forward contracts on foreign currencies) will be
subject to special provisions of the Code that, among other
things, may affect the character of gains and losses recognized
by the Portfolio (i.e., may affect whether gains or losses are
ordinary or capital), accelerate recognition of income to the
Portfolio, defer Portfolio losses and cause the Portfolio to be
subject to hyperinflationary currency rules. These rules could
therefore affect the character, amount and timing of
distributions to shareholders. The provisions also (1) will
require the Portfolio to mark-to-market certain types of its
positions (i.e., treat them as if they were closed out) and (2)
may cause the Portfolio to recognize income 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 Portfolio will monitor its
transactions, will make the appropriate tax elections and will
make the appropriate entries in its books and records when it
acquires any foreign currency, forward contract, option, futures
contract or hedged investment so that (1) neither the Portfolio
nor its shareholders will be treated as receiving a materially
greater amount of capital gains or distributions than actually
realized or received, (2) these special provisions will not
prevent the Portfolio from using substantially all of its losses
for the fiscal years in which the losses actually occur and (3)
the Portfolio will continue to qualify as a regulated investment
company.
Taxation of the Portfolio's Shareholders
Dividends paid from the Portfolio's net investment income
and distributions of the Portfolio's net realized short-term
capital gains are taxable to shareholders of the Portfolio as
ordinary income, regardless of the length of time shareholders
have held shares of Common Stock and whether the dividends or
distributions are received in cash or reinvested in additional
shares. Distributions of net long-term capital gains, if any,
will be taxable as long-term capital gains, whether received in
cash or reinvested in shares and regardless of how long the
shareholder has held the Portfolio shares. As a general rule, a
shareholder's gain or loss on a sale of his shares of Common
Stock will be a long-term gain or loss if he has held his shares
for more than one year and will be a short-term capital gain or
loss if he has held his shares for one year or less. If the
Portfolio invests in equity securities, a portion of the
dividends and distributions paid by the Portfolio may qualify for
the federal dividends-received deduction for corporations.
Dividend Reinvestment Plan
A shareholder of the Portfolio receiving dividends or
distributions in additional shares pursuant to the Portfolio's
Dividend Reinvestment Plan (the "Plan") should be treated for
federal income tax purposes as receiving a distribution in an
amount equal to the amount of money that a shareholder receiving
cash dividends or distributions receives, and should have a cost
basis in the shares received equal to that amount.
Return of Invested Capital
Investors considering buying shares just prior to a dividend
or capital gain distribution should be aware that, although the
price of shares purchased at that time may reflect the amount of
the forthcoming distribution, those who purchase just prior to a
distribution will receive a distribution that will nevertheless
be taxable to them.
Sale of Shares
Upon the sale or exchange of his shares, a shareholder will
realize a taxable gain or loss depending upon the amount realized
and his basis in his shares. Such gain or loss will be treated
as capital gain or loss if the shares are capital assets in the
shareholder's hands, and will be long-term or short-term
depending upon the shareholder's holding period for the shares.
Any loss realized on a sale or exchange will be disallowed to the
extent the shares disposed of are replaced, including replacement
through the reinvesting of dividends and capital gains
distributions in the Portfolio under the Plan, within a period of
61 days beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the
shares acquired will be increased to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of a Portfolio
share held by the shareholder for six months or less will be
treated for federal income tax purposes as a long-term capital
loss to the extent of any distributions or deemed distributions
of long-term capital gains received by the shareholder with
respect to such share.
Tender Offers to Purchase Shares
Under current law, a holder of Common Stock who tenders all
shares of Common Stock owned by such shareholder and any shares
considered owned by such shareholder under attribution rules
contained in the Code will realize a taxable gain or loss
depending upon such shareholder's basis in the shares. Such gain
or loss will be treated as capital gain or loss if the shares are
held as capital assets in the shareholder's hands and will be
long-term or short-term depending upon the shareholder's holding
period of the shares. If a holder of Common Stock tenders less
than all shares owned by and attributed to such shareholder (or
if the Portfolio purchases only some of the shares tendered by a
holder of Common Stock), and if the distribution to such
shareholder does not otherwise qualify as an exchange, the
proceeds received will be treated as a taxable dividend, return
of capital or capital gain depending on the Portfolio's earnings
and profits and the shareholder's basis in the tendered shares.
Statements and Notices
Each shareholder will receive an annual statement as to the
federal income tax status of the dividends and distributions from
the Portfolio for the prior calendar year. Furthermore,
shareholders will also receive, if appropriate, various written
notices after the close of the Portfolio's taxable year regarding
the federal income tax status of certain dividends and
distributions that were paid (or that are treated as having been
paid) by the Portfolio to its shareholders during the preceding
year.
Backup Withholding
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or interest
income, or fails to certify that the shareholder has provided a
correct taxpayer identification number and that the shareholder
is not subject to "backup withholding," the shareholder may be
subject to a 31% "backup withholding" tax with respect to (1)
taxable dividends and distributions and (2) the proceeds of any
sale or repurchases of shares of Common Stock. An individual's
taxpayer identification number is that individual's social
security number. Corporate shareholders and other shareholders
specified in the Code are or may be exempt from backup
withholding. The backup withholding tax is not an additional tax
and may be credited against a taxpayer's federal income tax
liability.
Other Taxes
Dividends and distributions also may be subject to state and
local taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN TAX CONSEQUENCES
AFFECTING THE PORTFOLIO AND ITS SHAREHOLDERS. SHAREHOLDERS ARE
ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE
PORTFOLIO.
STOCK PURCHASES AND TENDERS
The Portfolio may repurchase shares of its Common Stock in
the open market or in privately negotiated transactions when the
Portfolio can do so at prices below their then current net asset
value per share on terms that the Portfolio's Board of Directors
believes represent a favorable investment opportunity. In
addition, the Board of Directors currently intends to consider,
at least one a year, making an offer to each shareholder of
record to purchase at net asset value shares of Common Stock
owned by the shareholders.
No assurance can be given that repurchases and/or tenders
will result in the Portfolio's shares trading at a price that is
equal to their net asset value. The market prices of the
Portfolio's shares will, among other things, be determined by the
relative demand for and supply of the shares in the market, the
Portfolio's investment performance, the Portfolio's dividends and
yields and investor perception of the Portfolio's overall
attractiveness as an investment as compared with other investment
alternatives. The Portfolio's acquisition of Common Stock will
decrease the total assets of the Portfolio and therefore have the
effect of increasing the Portfolio's expense ratio. The
Portfolio may borrow money to finance the repurchase of shares
subject to the limitations described in the Prospectus and this
SAI. Any interest on the borrowings will reduce the Portfolio's
net income. Because of the nature of the Portfolio's investment
objectives, policies and securities holdings, SBMFM does not
anticipate that repurchases and tenders will have an adverse
effect on the Portfolio's investment performance and does not
anticipate any material difficulty in disposing of securities to
consummate Common Stock repurchases and tenders.
When a tender offer is authorized to be made by the
Portfolio's Board of Directors, it will be an offer to purchase
at a price equal to the net asset value of all (but not less than
all) of the shares owned by the shareholder (or attributed to him
for federal income tax purposes under Section 38 of the Code). A
shareholder who tenders all shares owned or considered owned by
him, as required, will realize a taxable gain or loss depending
upon his basis in those shares.
If the Portfolio liquidates securities in order to
repurchase shares of Common Stock, the Portfolio may realize
gains and losses. These gains, if any, may be realized on
securities held for less than three months. Because the
Portfolio must derive less than 30% of its gross income for any
taxable year from the sale or disposition of stock and securities
held for less than three months (in order to retain the
Portfolio's regulated investment company status under the Code),
gains realized by the Portfolio due to a liquidation of
securities held for less than three months would reduce the
amount of gain on sales of other securities held for less than
three months that the Portfolio could realize in the ordinary
course of its portfolio management and, therefore, which may
adversely affect the Portfolio's performance. The portfolio
turnover rate of the Portfolio may or may not be affected by the
Portfolio's repurchases of shares of Common Stock pursuant to a
tender offer.
ADDITIONAL INFORMATION
Legal Matters
Willkie Farr & Gallagher serves as legal counsel to the
Portfolio. The Non-Interested Directors have selected Stroock &
Stroock & Lavan as their counsel.
Independent Public Accountants
KPMG Peat Marwick, LLP, 345 Park Avenue, New York, NY 10154,
has been selected as the Portfolio's independent auditor to
examine and report on the Portfolio's financial statements and
highlights for the fiscal year ending February 28, 1997.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC"), located at 17th and
Chestnut Streets, Philadelphia, PA 19103, serves as the
Portfolio's custodian pursuant to a custody agreement. Under the
custody agreement, PNC holds the Portfolio's securities and keeps
all necessary accounts and records. The assets of the Portfolio
are held under bank custodianship in compliance with the 1940
Act.
First Data Investor Services Group, Inc. ("FDISG"), located
at Exchange Place, Boston, Massachusetts 02109, serves as the
Portfolio's transfer agent pursuant to a transfer agency
agreement. Under the transfer agency agreement, FDISG maintains
the shareholder account records for the Portfolio, handles
certain communications between shareholders and the Portfolio,
and distributions payable by the Portfolio.
FINANCIAL STATEMENTS
The Portfolio sends unaudited semi-annual and audited annual
financial statements of the Portfolio to shareholders, including
a list of the investments held by the Portfolio.
The Portfolio's Annual Report of the fiscal year ended
February 29, 1996 is incorporated into its Statement of
Additional Information by reference in its entirety. A copy of
the Annual Report may be obtained from any Smith Barney Financial
Consultant or by calling or writing to the Portfolio at the
telephone number or address set forth on the cover page of this
SAI.
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements:
- Included in Part A:
Financial Highlights Table
- Included in Part B:
Report of Independent Accountants is filed
herein.
- Incorporated by Reference into Part B:
Annual Report (audited) for period ended February
29, 1996 as filed
with the Securities and Exchange Commission on
May 23, 1996 as Accession # 91155-96-203.
(2) Exhibits:
(a) (i) Articles of Incorporation are incorporated
by reference to the
Registrant's initial Registration Statement
on Form N-2 (the "Registration Statement"),
Registration No. 33-56408, filed with the SEC
on December 28, 1992.
(ii) Articles of Amendment to Articles of
Incorporation are
incorporated by reference to the Registrant's
Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-2, filed
with the SEC on February 11, 1993 ("Pre-
Effective Amendment No. 1").
(b) (i) Bylaws of Registrant are incorporated by
reference to the
Registration Statement.
(ii) Amended Bylaws of Registrant are
incorporated by reference to
Pre-Effective Amendment No. 1.
(c) Not Applicable
(d) Specimen Certificate of Common Stock, par value
$.01 per share is
incorporated by reference to Pre-Effective
Amendment No. 1.
(e) Dividend Reinvestment Plan is incorporated by
reference to Pre-
Effective Amendment No. 1.
(f) Not Applicable
(g) (i) Form of Investment Advisory Agreement between
Registrant and Searson Lehman Advisors is
incorporated by reference to Pre- Effective
Amendment No. 1.
(ii) Form of Investment Advisory Agreement between
Registrant and Greenwich Street Advisors is
incorporated by reference to the
Registrant's Post-Effective Amendment No. 1
to its Registration Statement on Form N-2,
filed with the SEC on July 14, 1994 ("Post-
Effective Amendment No. 1").
(iii) Form of Transfer and Assumption of
Investment Advisory
Agreement between the Registrant and Smith
Barney Mutual Funds Management Inc. is filed
herein.
(h) Form of Underwriting Agreement between
Registrant and Shearson Lehman Brothers Inc.
is incorporated by reference
to Pre-Effective Amendment No. 1.
(i) Not Applicable
(j) Form of Custody Agreement between Registrant
and PNC
Bank, National Association is filed herein.
(k) (i) Transfer Agency and Registrar Agreement
between Registrant and TSSG is incorporated by
reference to Pre-Effective Amendment No. 1.
(ii) Administration Agreement between Registrant
and Smith, Barney Advisors, Inc. is
incorporated by reference to Post-Effective
Amendment No. 1.
(iii) Form of Market-Making Agreement between
the Registrant and Smith Barney Inc. is
filed herein.
(l) Opinion and Consent of Counsel is incorporated by
reference to the Registrant's Pre-Effective
Amendment No. 2 to its Registration Statement on
Form N-2, filed with the SEC on March 18, 1993.
(m) Not Applicable
(n) Consent of Independent Auditors is filed herein.
(o) Financial Data Schedule is filed herein.
(p) Form of Purchase Agreement between Registrant and
Shearson Lehman
Brothers Inc. is incorporated by reference to Pre-
Effective Amendment No. 1.
(q) Not Applicable
Item 25. Marketing Arrangements
None
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the expenses to be incurred
in connection with the offering described in this Registration
Statement:
Securities and Exchange Commission Fees $ 100
Printing and Engraving Expenses 3,500
Legal Fees 0
Accounting Expenses 31,500
Miscellaneous Expenses 0
Total $35,100
Item 27. Persons Controlled by or Under Common Control
None
Item 28. Number of Holders of Securities
Number of
Record
Stockholders
as of
Title of Class May 31, 1996
Shares of Common Stock, par value
$0.01 per share
Item 29. Indemnification
Under Article VII of Registrant's Articles of Incorporation,
any past or present director or officer of Registrant is
indemnified to the fullest extent permitted by law against
liability and all expenses reasonably incurred by him in
connection with any action, suit or proceeding to which he may be
a party or otherwise involved by reason or his being or having
been a director or officer of Registrant. This provision does
not authorize indemnification when it is determined that the
director or officer would otherwise be liable to Registrant or
its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his duties. Expenses
may be paid by Registrant in advance of the final disposition of
any action, suit or proceeding upon receipt of an undertaking by
a director or officer to repay those expenses to Registrant in
the event that it is ultimately determined that indemnification
of the expenses is not authorized under Registrant's Articles of
Incorporation.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be
permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against policy
as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of
expenses incurred or paid by a director, officer or controlling
person of Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
Item 30. Business and Other Connections of Investment Adviser
Investment Adviser - - Smith Barney Mutual Funds Management Inc.,
formerly known as Smith Barney Advisers, Inc. ("SBMFM").
SBMFM was incorporated in December 1968 under the laws of the
State of Delaware. SBFMFM is a wholly owned subsidiary of Smith
Barney Holdings Inc. (formerly known as Smith Barney Shearson
Holdings Inc.) ("Holdings"), which in turn is a wholly owned
subsidiary of Travelers Group Inc. (formerly known as Primerica
Corporation) ("Travelers"). SBMFM is registered as an investment
adviser under the Investment Advisers Act of 1940 (the "Advisers
Act").
The list required by this Item 28 of officers and directors of
SBMFM together with information as to any other business,
profession, vocation or employment of a substantial nature
engaged in by such officers and directors during the past two
years, is incorporated by reference to Schedules A and D of FORM
ADV filed by SBMFM pursuant to the Advisers Act (SEC File No.
801-8314).
Prior to the close of business on November 7, 1994, Greenwich
Street Advisors served as investment adviser. Greenwich Street
Advisors, through its predecessors, had been in the investment
counseling business since 1934 and was a division of Mutual
Management Corp. ("MMC"). MMC was incorporated in 1978 and is a
wholly owned subsidiary of Holdings, which is in turn a wholly
owned subsidiary of Travelers. The list required by this Item 28
of officers and directors of MMC and Greenwich Street Advisors,
together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such
officers and directors during the past two fiscal years, is
incorporated by reference to Schedules A and D of FORM ADV filed
by MMC on behalf of Greenwich Street Advisors pursuant to the
Advisers Act (SEC File No. 801-14437).
Item 31. Location of Accounts and Records
Managed High Income Portfolio Inc.
388 Greenwich Street
New York, New York 10013
Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
Item 32. Management Services
None
Item 33. Undertakings
1. Not Applicable.
2. Not Applicable.
3. Not Applicable.
4. The Portfolio hereby undertakes:
(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this
Registration Statement:
(1) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933 (the
"Act");
(2) to reflect in the Prospectus any facts or events
arising 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) For the purpose of determining any liability under the
Act, each post-effective amendment shall be deemed to
be a new Registration Statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) Not Applicable
5. Not Applicable.
6. The Portfolio undertakes to send by first class mail or
other means designed to ensure equally prompt
delivery, within two business days of receipt of a written or
oral request, any Statement of Additional
Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, as amended, the
Registrant has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of
New York, on the 13th day of June, 1996.
MANAGED HIGH INCOME PORTOFLIO INC.
By:/s/Heath B. McLendon_____
Health B. McLendon
Chairman of the Board
We, the undersigned, hereby severally constitute and appoint
Heath B. McLendon, Christina T. Sydor and Caren Cunningham and
each of them singly, our true and lawful attorneys, with full
power to them and each of them to sign for us, and in our hands
and in the capacities indicated below, any and all Amendments to
this Registration Statement and to file the same, with all
exhibits thereto, and other documents therewith, with the
Securities and Exchange Commission, granting unto said attorneys
and each of them, acting alone, full authority and power to do
and perform each and every act and thing requisite or necessary
to be done in the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and
confirming all that said attorneys or any of them may lawfully do
or cause to be done by virtue thereof.
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933,
as amended, this Amendment to the Registration Statement and the
above Power of Attorney has been signed below by the following
persons in the capacities and as of the dates indicated.
Signature Title Date
/s/ Heath B. Chairman of the Board, June 13,
McLendon Chief Executive Officer 1996
Heath B. McLendon and Director
/s/Jessica Bibliowicz President June 13,
1996
Jessica Bibliowicz
/s/ Lewis E. Treasurer(Chief June 13,
Daidone Financial 1996
Lewis E. Daidone and Accounting Officer)
/s/ Paolo M. Director June 13,
Cucchi 1996
Paolo M. Cucchi
/s/ Alessandro C. di Director June 13,
Montezemolo 1996
Alessandro C. di
Montezemolo
/s/ Andrea Director June 13,
Farace 1996
Andrea Farace
/s/ Paul Director June 13,
Hardin 1996
Paul Hardin
/s/ George M. Director June 13,
Pavia 1996
George M. Pavia
B:\JG1\SBAMMC.DOC
Form of
TRANSFER AND ASSUMPTION OF
INVESTMENT ADVISORY AGREEMENT
for
[*]
TRANSFER AND ASSUMPTION OF INVESTMENT ADVISORY AGREEMENT,
made as of the ___ day of October, 1994, by and among [*], a
[Massachusetts business trust (the "Trust")/Maryland corporation
(the "Company")], Mutual Management Corp., a Delaware corporation
("MMC"), and Smith, Barney Advisers, Inc., a Delaware corporation
("SBA")
WHEREAS, the Trust/Company is registered with the Securities
and Exchange Commission as an open-end management investment
company under the Investment Company Act of 1940, as amended (the
"Act"); and
[WHEREAS, the Trust/Company consists of several distinct
investment portfolios or series (collectively, the "Funds"); and]
WHEREAS, the Trust/Company, [on behalf of the Funds,] and
MMC entered into an Investment Advisory Agreement on July 30,
1993, under which MMC serves as the investment adviser (the
"Investment Adviser") for [the Funds of] the Trust/Company; and
WHEREAS, MMC desires that its interest, rights,
responsibilities and obligations in and under the Investment
Advisory Agreement be transferred to SBA and SBA desires to
assume MMC's interest, rights, responsibilities and obligations
in and under the Investment Advisory Agreement; and
WHEREAS, this Agreement does not result in a change of
actual control or management of the Investment Adviser to the
Trust/Company and, therefore, is not an "assignment" as defined
in Section 2(a)(4) of the Act nor an "assignment" for the
purposes of Section 15(a)(4) of the Act.
NOW, THEREFORE, in consideration of the mutual covenants set
forth in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. Assignment. Effective as of November 7, 1994 (the
"Effective Date"), MMC hereby transfers to SBA all of MMC's
interest, rights, responsibilities and obligations in and under
the Investment Advisory Agreement dated July 30, 1993, to which
MMC is a party with the Trust/Company.
2. Assumption and Performance of Duties. As of the
Effective Date, SBA hereby accepts all of MMC's interest and
rights, and assumes and agrees to perform all of MMC's
responsibilities and obligations in and under the Investment
Advisory Agreement; SBA agrees to subject to all of the terms and
conditions of said Agreement; and SBA shall indemnify and hold
harmless MMC from any claim or demand made thereunder arising or
incurred after the Effective Date.
3. Representation of SBA. SBA represents and warrants
that: (1) it is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended; and (2) Smith Barney
Holdings, Inc. is its sole shareholder.
4. Consent. The Trust/Company hereby consents to this
transfer by MMC to SBA of MMC's interest, rights,
responsibilities and obligations in and under the Investment
Advisory Agreement and to the acceptance and assumption by SBA of
the same. The Trust/Company agrees, subject to the terms and
conditions of said Agreement, to look solely to SBA for the
performance of the Investment Adviser's responsibilities and
obligations under said Agreement from and after the Effective
Date, and to recognize as inuring solely to SBA the interest and
rights heretofore held by MMC thereunder.
5. [Trusts only: Limitation of Liability of Trustees,
Officers and Shareholders. It is expressly agreed that the
obligations of the Trust hereunder shall not be binding upon any
of the Trustees, shareholders, nominees, officers, agents, or
employees of the Trust, personally, but shall bind only the trust
property of the Trust, as provided in the Declaration of Trust of
the Trust. The execution and delivery of this Agreement have
been authorized by the Trustees of the Trust and signed by the
President of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by
such officer shall be deemed to have been made by any of them
individually of to impose any liability on any of them,
personally, but shall bind only the trust property of the Trust
as provided in its Declaration of Trust.]
6. 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.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers
hereunto duly attested.
Attest:
__________________________ By:
____________________________
Secretary [*]
Date:
___________________, 1994
Attest:
__________________________ By:
____________________________
Secretary
Mutual Management Corp.
Date:
____________________, 1994
Attest:
__________________________ By:
____________________________
Secretary
Smith, Barney Advisers,
Inc.
Date:
_____________________, 1994
[*]=List
CUSTODIAN SERVICES AGREEMENT
This Agreement is made as of ____________, 1995 by and
between MANAGED HIGH INCOME PORTFOLIO INC., a Maryland
corporation (the "Fund") and PNC BANK, NATIONAL ASSOCIATION,
a national banking association ("PNC Bank").
The Fund is registered as an open-end investment
company under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Fund wishes to retain PNC Bank to
provide custodian services and PNC Bank wishes to furnish
such services, either directly or through an affiliate or
affiliates, as more fully described herein. In
consideration of the premises and mutual covenants herein
contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person." The term "Authorized
Person" shall mean any officer of the Fund and any other
person, who is duly authorized by the Fund's Governing
Board, to give Oral and Written Instructions on behalf of
the Fund. Such persons are listed in the Certificate
attached hereto as the Authorized Persons Appendix, as such
Appendix may be amended in writing by the Fund's Governing
Board from time to time.
(b) "Book-Entry System." The term "Book-Entry
System" means Federal Reserve Treasury book-entry system for
United States and federal agency securities, its successor
or successors, and its nominee or nominees and any book-
entry system maintained by an exchange registered with the
SEC under the 1934 Act.
(c) "CFTC." The term "CFTC" shall mean the
Commodities Futures Trading Commission.
(d) "Governing Board." The term "Governing
Board" shall mean the Fund's Board of Directors if the Fund
is a corporation or the Fund's Board of Trustees if the Fund
is a trust, or, where duly authorized, a competent committee
thereof.
(e) "Oral Instructions." The term "Oral
Instructions" shall mean oral instructions received by PNC
Bank from an Authorized Person or from a person reasonably
believed by PNC Bank to be an Authorized Person.
(f) "SEC." The term "SEC" shall mean the
Securities and Exchange Commission.
(g) "Securities and Commodities Laws." The term
"Securities and Commodities Laws" shall mean the "1933 Act"
which shall mean the Securities Act of 1933, the "1934 Act"
which shall mean the Securities Exchange Act of 1934, the
1940 Act, and the "CEA" which shall mean the Commodities
Exchange Act, as amended.
(h) "Shares." The term "Shares" shall mean the
shares of stock of any series or class of the Fund, or,
where appropriate, units of beneficial interest in a trust
where the Fund is organized as a Trust.
(i) "Property." The term "Property" shall mean:
(i) any and all securities and other
investment items which the Fund may from time to time
deposit, or cause to be deposited, with PNC Bank or which
PNC Bank may from time to time hold for the Fund;
(ii) all income in respect of any of such
securities or other investment items;
(iii) all proceeds of the sale of any of such
securities or investment items; and
(iv) all proceeds of the sale of securities
issued by the Fund, which are received by PNC Bank from
time to time, from or on behalf of the Fund.
(j) "Written Instructions." The term "Written
Instructions" shall mean written instructions signed by one
Authorized Person and received by PNC Bank. The
instructions may be delivered by hand, mail, tested
telegram, cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank to
provide custodian services to the Fund, and PNC Bank accepts
such appointment and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or,
where applicable, will provide PNC Bank with the following:
(a) certified or authenticated copies of the
resolutions of the Fund's Governing Board, approving the
appointment of PNC Bank or its affiliates to provide
services;
(b) a copy of the Fund's most recent effective
registration statement;
(c) a copy of the Fund's advisory agreement or
agreements;
(d) a copy of the Fund's distribution agreement
or agreements;
(e) a copy of the Fund's administration
agreements if PNC Bank is not providing the Fund with such
services; (f) copies of any shareholder
servicing agreements made in respect of the Fund; and
(g) certified or authenticated copies of any and
all amendments or supplements to the foregoing.
4. Compliance with Government Rules and Regulations.
PNC Bank undertakes to comply with all applicable
requirements of the Securities and Commodities Laws and any
laws, rules and regulations of governmental authorities
having jurisdiction with respect to all duties to be
performed by PNC Bank hereunder. Except as specifically set
forth herein, PNC Bank assumes no responsibility for such
compliance by the Fund.
5. Instructions. Unless otherwise provided in this
Agreement, PNC Bank shall act only upon Oral and Written
Instructions. PNC Bank shall be entitled to rely upon any
Oral and Written Instructions it receives from an Authorized
Person (or from a person reasonably believed by PNC Bank to
be an Authorized Person) pursuant to this Agreement. PNC
Bank may assume that any Oral or Written Instructions
received hereunder are not in any way inconsistent with the
provisions of organizational documents or this Agreement or
of any vote, resolution or proceeding of the Fund's
Governing Board or of the Fund's shareholders.
The Fund agrees to forward to PNC Bank Written
Instructions confirming Oral Instructions so that PNC Bank
receives the Written Instructions by the close of business
on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not
received by PNC Bank shall in no way invalidate the
transactions or enforceability of the transactions
authorized by the Oral Instructions.
The Fund further agrees that PNC Bank shall incur no
liability to the Fund in acting upon Oral or Written
Instructions provided such instructions reasonably appear to
have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If PNC Bank is in doubt
as to any action it should or should not take, PNC Bank may
request directions or advice, including Oral or Written
Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in
doubt as to any questions of law pertaining to any action it
should or should not take, PNC Bank may request advice at
its own cost from such counsel of its own choosing (who may
be counsel for the Fund, the Fund's advisor or PNC Bank, at
the option of PNC Bank).
(c) Conflicting Advice. In the event of a
conflict between directions, advice or Oral or Written
Instructions PNC Bank receives from the Fund, and the advice
it receives from counsel, PNC Bank shall be entitled to rely
upon and follow the advice of counsel.
(d) Protection of PNC Bank. PNC Bank shall be
protected in any action it takes or does not take in
reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and
which PNC Bank believes, in good faith, to be consistent
with those directions, advice or Oral or Written
Instructions.
Nothing in this paragraph shall be construed so as to
impose an obligation upon PNC Bank (i) to seek such
directions, advice or Oral or Written Instructions, or (ii)
to act in accordance with such directions, advice or Oral or
Written Instructions unless, under the terms of other
provisions of this Agreement, the same is a condition of PNC
Bank's properly taking or not taking such action.
7. Records. The books and records pertaining to the
Fund which are in the possession of PNC Bank, shall be the
property of the Fund. Such books and records shall be
prepared and maintained as required by the 1940 Act and
other applicable securities laws, rules and regulations.
The Fund, or the Fund's Authorized Persons, shall have
access to such books and records at all time during PNC
Bank's normal business hours. Upon the reasonable request
of the Fund, copies of any such books and records shall be
provided by PNC Bank to the Fund or to an Authorized Person
of the Fund, at the Fund's expense.
8. Confidentiality. PNC Bank agrees to keep
confidential all records of the Fund and information
relative to the Fund and its shareholders (past, present and
potential), unless the release of such records or
information is otherwise consented to, in writing, by the
Fund. The Fund agrees that such consent shall not be
unreasonably withheld and may not be withheld where PNC Bank
may be exposed to civil or criminal contempt proceedings or
when required to divulge. The Fund further agrees that,
should PNC Bank be required to provide such information or
records to duly constituted authorities (who may institute
civil or criminal contempt proceedings for failure to
comply), PNC Bank shall not be required to seek the Fund's
consent prior to disclosing such information.
9. Cooperation with Accountants. PNC Bank shall
cooperate with the Fund's independent public accountants and
shall take all reasonable action in the performance of its
obligations under this Agreement to ensure that the
necessary information is made available to such accountants
for the expression of their opinion, as required by the
Fund.
10. Disaster Recovery. PNC Bank shall enter into and
shall maintain in effect with appropriate parties one or
more agreements making reasonable provision for emergency
use of electronic data processing equipment to the extent
appropriate equipment is available. In the event of
equipment failures, PNC Bank shall, at no additional expense
to the Fund, take reasonable steps to minimize service
interruptions but shall have no liability with respect
thereto.
11. Compensation. As compensation for custody
services rendered by PNC Bank during the term of this
Agreement, the Fund will pay to PNC Bank a fee or fees as
may be agreed to in writing from time to time by the Fund
and PNC Bank.
12. Indemnification. The Fund agrees to indemnify and
hold harmless PNC Bank and its nominees from all taxes,
charges, expenses, assessment, claims and liabilities
(including, without limitation, liabilities arising under
the Securities and Commodities Laws and any state and
foreign securities and blue sky laws, and amendments
thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or
indirectly from any action which PNC Bank takes or does not
take (i) at the request or on the direction of or in
reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions. Neither PNC Bank, nor any of its
nominees, shall be indemnified against any liability to the
Fund or to its shareholders (or any expenses incident to
such liability) arising out of PNC Bank's own willful
misfeasance, bad faith, negligence or reckless disregard of
its duties and obligations under this Agreement.
13. Responsibility of PNC Bank. PNC Bank shall be
under no duty to take any action on behalf of the Fund
except as specifically set forth herein or as may be
specifically agreed to by PNC Bank, in writing. PNC Bank
shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith
and to use its best effort, within reasonable limits, in
performing services provided for under this Agreement. PNC
Bank shall be responsible for its own negligent failure to
perform its duties under this Agreement. Notwithstanding the
foregoing, PNC Bank shall not be responsible for losses
beyond its control, provided that PNC Bank has acted in
accordance with the standard of care set forth above; and
provided further that PNC Bank shall only be responsible for
that portion of losses or damages suffered by the Fund that
are attributable to the negligence of PNC Bank.
Without limiting the generality of the foregoing or of
any other provision of this Agreement, PNC Bank, in
connection with its duties under this Agreement, shall not
be under any duty or obligation to inquire into and shall
not be liable for (a) the validity or invalidity or
authority or lack thereof of any Oral or Written
Instruction, notice or other instrument which conforms to
the applicable requirements of this Agreement, and which PNC
Bank reasonably believes to be genuine; or (b) delays or
errors or loss of data occurring by reason of circumstances
beyond PNC Bank's control, including acts of civil or
military authority, national emergencies, labor
difficulties, fire, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
Notwithstanding anything in this Agreement to the
contrary, PNC Bank shall have no liability to the Fund for
any consequential, special or indirect losses or damages
which the Fund may incur or suffer by or as a consequence of
PNC Bank's performance of the services provided hereunder,
whether or not the likelihood of such losses or damages was
known by PNC Bank.
14. Description of Services.
(a) Delivery of the Property. The Fund will
deliver or arrange for delivery to PNC Bank, all the
property owned by the Fund, including cash received as a
result of the distribution of its Shares, during the period
that is set forth in this Agreement. PNC Bank will not be
responsible for such property until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank,
acting upon Written Instructions, shall open and maintain
separate account(s) in the Fund's name using all cash
received from or for the account of the Fund, subject to the
terms of this Agreement. In addition, upon Written
Instructions, PNC Bank shall open separate custodial
accounts for each separate series, class or portfolio of the
Fund and shall hold in such account(s) all cash received
from or for the accounts of the Fund specifically designated
to each separate series, class or portfolio. PNC Bank shall
make cash payments from or for the account of the Fund only
for:
(i) purchases of securities in the name of
the Fund or PNC Bank or PNC Bank's nominee as provided in
sub-paragraph j and for which PNC Bank has received a copy
of the broker's or dealer's confirmation or payee's invoice,
as appropriate;
(ii) purchase or redemption of Shares of the
Fund delivered to PNC Bank;
(iii) payment of, subject to Written
Instructions, interest, taxes, administration, accounting,
distribution, advisory, management fees or similar expenses
which are to be borne by the Fund;
(iv) payment to, subject to receipt of
Written Instructions, the Fund's transfer agent, as agent
for the shareholders, an amount equal to the amount of
dividends and distributions stated in the Written
Instructions to be distributed in cash by the transfer agent
to shareholders, or, in lieu of paying the Fund's transfer
agent, PNC Bank may arrange for the direct payment of cash
dividends and distributions to shareholders in accordance
with procedures mutually agreed upon from time to time by
and among the Fund, PNC Bank and the Fund's transfer agent;
(v) payments, upon receipt of Written
Instructions, in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund
and held by or delivered to PNC Bank;
(vi) payments of the amounts of dividends
received with respect to securities sold short; payments
made to a sub-custodian pursuant to provisions in sub-
paragraph c of this Paragraph; and
(viii) payments, upon Written Instructions made
for other proper Fund purposes. PNC Bank is hereby
authorized to endorse and collect all checks, drafts or
other orders for the payment of money received as custodian
for the account of the Fund.
(c) Receipt of Securities.
(i) PNC Bank shall hold all securities
received by it for the account of the Fund in a separate
account that physically segregates such securities from
those of any other persons, firms or corporations, except
for securities held in a Book-Entry System. All such
securities shall be held or disposed of only upon Written
Instructions of the Fund pursuant to the terms of this
Agreement. PNC Bank shall have no power or authority to
assign, hypothecate, pledge or otherwise dispose of any such
securities or investment, except upon the express terms of
this Agreement and upon Written Instructions, accompanied by
a certified resolution of the Fund's Governing Board,
authorizing the transaction. In no case may any member of
the Fund's Governing Board, or any officer, employee or
agent of the Fund withdraw any securities. At PNC Bank's
own expense and for its own convenience, PNC Bank may enter
into sub-custodian agreements with other banks or trust
companies to perform duties described in this sub-paragraph
c. Such bank or trust company shall have an aggregate
capital, surplus and undivided profits, according to its
last published report, of at least one million dollars
($1,000,000), if it is a subsidiary or affiliate of PNC
Bank, or at least twenty million dollars ($20,000,000) if
such bank or trust company is not a subsidiary or
affiliate of PNC Bank. In addition, such bank or trust
company must agree to comply with the relevant provisions of
the 1940 Act and other applicable rules and regulations.
PNC Bank shall remain responsible for the performance of all
of its duties as described in this Agreement and shall hold
the Fund harmless from PNC Bank's own (or any sub-custodian
chosen by PNC Bank under the terms of this sub-paragraph c)
acts or omissions, under the standards of care provided for
herein.
(d) Transactions Requiring Instructions. Upon
receipt of Oral or Written Instructions and not otherwise,
PNC Bank, directly or through the use of the Book-Entry
System, shall:
(i) deliver any securities held for the Fund
against the receipt of payment for the sale of such
securities;
(ii) execute and deliver to such persons as
may be designated in such Oral or Written Instructions,
proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any
securities may be exercised;
(iii) deliver any securities to the issuer
thereof, or its agent, when such securities are called,
redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is
to be delivered to PNC Bank;
(iv) deliver any securities held for the Fund
against receipt of other securities or cash issued or paid
in connection with the liquidation, reorganization,
refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise of any
conversion privilege;
(v) deliver any securities held for the Fund
to any protective committee, reorganization committee or
other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale
of assets of any corporation, and receive and hold under the
terms of this Agreement such certificates of deposit,
interim receipts or other instruments or documents as may be
issued to it to evidence such delivery;
(vi) make such transfer or exchanges of the
assets of the Fund and take such other steps as shall be
stated in said Oral or Written Instructions to be for the
purpose of effectuating a duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
(vii) release securities belonging to the Fund
to any bank or trust company for the purpose of a pledge or
hypothecation to secure any loan incurred by the Fund;
provided, however, that securities shall be released only
upon payment to PNC Bank of the monies borrowed, except that
in cases where additional collateral is required to secure a
borrowing already made subject to proper prior
authorization, further securities may be released for that
purpose; and repay such loan upon redelivery to it of the
securities pledged or hypothecated therefor and upon
surrender of the note or notes evidencing the loan;
(viii) release and deliver securities owned by
the Fund in connection with any repurchase agreement entered
into on behalf of the Fund, but only on receipt of payment
therefor; and pay out moneys of the Fund in connection with
such repurchase agreements, but only upon the delivery of
the securities;
(ix) release and deliver or exchange
securities owned by the Fund in connection with any
conversion of such securities, pursuant to their terms, into
other securities;
(x) release and deliver securities owned by
the Fund for the purpose of redeeming in kind shares of the
Fund upon delivery thereof to PNC Bank; and
(xi) release and deliver or exchange
securities owned by the Fund for other corporate purposes.
PNC Bank must also receive a certified resolution describing
the nature of the corporate purpose and the name and address
of the person(s) to whom delivery shall be made when such
action is pursuant to sub-paragraph d above.
(e) Use of Book-Entry System. The Fund shall deliver
to PNC Bank certified resolutions of the Fund's Governing
Board approving, authorizing and instructing PNC Bank on a
continuous and on-going basis, to deposit in the Book-Entry
System all securities belonging to the Fund eligible for
deposit therein and to utilize the Book-Entry System to the
extent possible in connection with settlements of purchases
and sales of securities by the Fund, and deliveries and
returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with
borrowings. PNC Bank shall continue to perform such duties
until it receives Written or Oral Instructions authorizing
contrary actions(s).
To administer the Book-Entry System properly, the
following provisions shall apply:
(i) With respect to securities of the Fund
which are maintained in the Book-Entry system, established
pursuant to this sub-paragraph e hereof, the records of PNC
Bank shall identify by Book-Entry or otherwise those
securities belonging to the Fund. PNC Bank shall furnish
the Fund a detailed statement of the Property held for the
Fund under this Agreement at least monthly and from time to
time and upon written request.
(ii) Securities and any cash of the Fund
deposited in the Book-Entry System will at all times be
segregated from any assets and cash controlled by PNC Bank
in other than a fiduciary or custodian capacity but may be
commingled with other assets held in such capacities. PNC
Bank and its sub-custodian, if any, will pay out money only
upon receipt of securities and will deliver securities only
upon the receipt of money.
(iii) All books and records maintained by PNC
Bank which relate to the Fund's participation in the Book-
Entry System will at all times during PNC Bank's regular
business hours be open to the inspection of the Fund's duly
authorized employees or agents, and the Fund will be
furnished with all information in respect of the services
rendered to it as it may require.
(iv) PNC Bank will provide the Fund with
copies of any report obtained by PNC Bank on the system of
internal accounting control of the Book-Entry System
promptly after receipt of such a report by PNC Bank. PNC
Bank will also provide the Fund with such reports on its own
system of internal control as the Fund may reasonably
request from time to time.
(f) Registration of Securities. All Securities
held for the Fund which are issued or issuable only in
bearer form, except such securities held in the Book-Entry
System, shall be held by PNC Bank in bearer form; all other
securities held for the Fund may be registered in the name
of the Fund; PNC Bank; the Book-Entry System; a sub-
custodian; or any duly appointed nominee(s) of the Fund, PNC
Bank, Book-Entry system or sub-custodian. The Fund reserves
the right to instruct PNC Bank as to the method of
registration and safekeeping of the securities of the Fund.
The Fund agrees to furnish to PNC Bank appropriate
instruments to enable PNC Bank to hold or deliver in proper
form for transfer, or to register its registered nominee or
in the name of the Book-Entry System, any securities which
it may hold for the account of the Fund and which may from
time to time be registered in the name of the Fund. PNC
Bank shall hold all such securities which are not held in
the Book-Entry System in a separate account for the Fund in
the name of the Fund physically segregated at all times from
those of any other person or persons.
(g) Voting and Other Action. Neither PNC Bank
nor its nominee shall vote any of the securities held
pursuant to this Agreement by or for the account of the
Fund, except in accordance with Written Instructions. PNC
Bank, directly or through the use of the Book-Entry System,
shall execute in blank and promptly deliver all notice,
proxies, and proxy soliciting materials to the registered
holder of such securities. If the registered holder is not
the Fund then Written or Oral Instructions must designate
the person(s) who owns such securities.
(h) Transactions Not Requiring Instructions. In
the absence of contrary Written Instructions, PNC Bank is
authorized to take the following actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account
of the Fund, all income, dividends, distributions, coupons,
option premiums, other payments and similar items, included
or to be included in the Property, and, in addition,
promptly advise the Fund of such receipt and credit such
income, as collected, to the Fund's custodian account;
(B) endorse and deposit for collection,
in the name of the Fund, checks, drafts, or other orders for
the payment of money;
(C) receive and hold for the account of
the Fund all securities received as a distribution on the
Fund's portfolio securities as a result of a stock dividend,
share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of
rights or similar securities issued with respect to any
portfolio securities belonging to the Fund held by PNC Bank
hereunder;
(D) present for payment and collect the
amount payable upon all securities which may mature or be
called, redeemed, or retired, or otherwise become payable on
the date such securities become payable; and
(E) take any action which may be
necessary and proper in connection with the collection and
receipt of such income and other payments and the
endorsement for collection of checks, drafts, and other
negotiable instruments.
(ii) Miscellaneous Transactions.
(A) PNC Bank is authorized to deliver
or cause to be delivered Property against payment or other
consideration or written receipt therefor in the following
cases:
(1) for examination by a broker or
dealer selling for the account of the Fund in accordance
with street delivery custom;
(2) for the exchange of interim
receipts or temporary securities for definitive securities;
and
(3) for transfer of securities
into the name of the Fund or PNC Bank or nominee of either,
or for exchange of securities for a different number of
bonds,certificates, or other evidence, representing the same
aggregate face amount or number of units bearing the same
interest rate, maturity date and call provisions, if any;
provided that, in any such case, the new securities are to
be delivered to PNC Bank.
(B) Unless and until PNC Bank receives
Oral or Written Instructions to the contrary, PNC Bank
shall:
(1) pay all income items held by
it which call for payment upon presentation and hold the
cash received by it upon such payment for the account of the
Fund;
(2) collect interest and cash
dividends received, with notice to the Fund, to the Fund's
account;
(3) hold for the account of the
Fund all stock dividends, rights and similar securities
issued with respect to any securities held by PNC Bank; and
(4) execute as agent on behalf of
the Fund all necessary ownership certificates required by
the Internal Revenue Code or the Income Tax Regulations of
the United States Treasury Department or under the laws of
any State now or hereafter in effect, inserting the Fund's
name, on such certificate as the owner of the securities
covered thereby, to the extent it may lawfully do so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written
or Oral Instructions establish and maintain segregated
account(s) on its records for and on behalf of the Fund.
Such account(s) may be used to transfer cash and securities,
including securities in the Book-Entry System:
(A) for the purposes of compliance by
the Fund with the procedures required by a securities or
option exchange, providing such procedures comply with the
1940 Act and any releases of the SEC relating to the
maintenance of segregated accounts by registered investment
companies; and
(B) Upon receipt of Written
Instructions, for other proper corporate purposes.
(ii) PNC Bank may enter into separate
custodial agreements with various futures commission
merchants ("FCMs") that the Fund uses ("FCM Agreement").
Pursuant to an FCM Agreement, the Fund's margin deposits in
any transactions involving futures contracts and options on
futures contracts will be held by PNC Bank in accounts ("FCM
Account") subject to the disposition by the FCM involved in
such contracts and in accordance with the customer contract
between FCM and the Fund ("FCM Contract"), SEC rules and the
rules of the applicable commodities exchange. Such FCM
Agreements shall only be entered into upon receipt of
Written Instructions from the Fund which state that:
(A) a customer agreement between the
FCM and the Fund has been entered into; and
(B) the Fund is in compliance with all
the rules and regulations of the CFTC. Transfers of initial
margin shall be made into a FCM Account only upon Written
Instructions; transfers of premium and variation margin may
be made into a FCM Account pursuant to Oral Instructions.
Transfers of funds from a FCM
Account to the FCM for which PNC Bank holds such an account
may only occur upon certification by the FCM to PNC Bank
that pursuant to the FCM Agreement and the FCM Contract, all
conditions precedent to its right to give PNC Bank such
instructions have been satisfied.
(iii) PNC Bank shall arrange for the
establishment of IRA custodian accounts for such share-
holders holding Shares through IRA accounts, in accordance
with the Fund's prospectuses, the Internal Revenue Code
(including regulations), and with such other procedures as
are mutually agreed upon from time to time by and among the
Fund, PNC Bank and the Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall
settle purchased securities upon receipt of Oral or Written
Instructions from the Fund or its investment advisor(s) that
specify:
(i) the name of the issuer and the title of
the securities, including CUSIP number if applicable;
(ii) the number of shares or the principal
amount purchased and accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such
purchase; and
(vi) the name of the person from whom or the
broker through whom the purchase was made. PNC Bank shall
upon receipt of securities purchased by or for the Fund pay
out of the moneys held for the account of the Fund the total
amount payable to the person from whom or the broker through
whom the purchase was made, provided that the same conforms
to the total amount payable as set forth in such Oral or
Written Instructions.
(k) Sales of Securities. PNC Bank shall settle
sold securities upon receipt of Oral or Written Instructions
from the Fund that specify:
(i) the name of the issuer and the title of
the security, including CUSIP number if applicable;
(ii) the number of shares or principal amount
sold, and accrued interest, if any;
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable to the Fund
upon such sale;
(vi) the name of the broker through whom or
the person to whom the sale was made; and
(vii) the location to which the security must
be delivered and delivery deadline, if any. PNC Bank shall
deliver the securities upon receipt of the total amount
payable to the Fund upon such sale, provided that the total
amount payable is the same as was set forth in the Oral or
Written Instructions. Subject to the foregoing, PNC Bank
may accept payment in such form as shall be satisfactory to
it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in
securities.
(l) Reports.
(i) PNC Bank shall furnish the Fund the
following reports:
(A) such periodic and special reports
as the Fund may reasonably request;
(B) a monthly statement summarizing all
transactions and entries for the account of the Fund,
listing the portfolio securities belonging to the Fund with
the adjusted average cost of each issue and the market value
at the end of such month, and stating the cash account of
the Fund including disbursement;
(C) the reports to be furnished to the
Fund pursuant to Rule 17f-4; and
(D) such other information as may be
agreed upon from time to time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the
Fund any proxy statement, proxy material, notice of a call
or conversion or similar communication received by it as
custodian of the Property. PNC Bank shall be under no other
obligation to inform the Fund as to such actions or events.
(m) Collections. All collections of monies or
other property, in respect, or which are to become part of
the Property (but not the safekeeping thereof upon receipt
by PNC Bank) shall be at the sole risk of the Fund. If
payment is not received by PNC Bank within a reasonable time
after proper demands have been made, PNC Bank shall notify
the Fund in writing, including copies of all demand letters,
any written responses, memoranda of all oral responses and
telephonic demands thereto, and await instructions from the
Fund. PNC Bank shall not be obliged to take legal action
for collection unless and until reasonably indemnified to
its satisfaction. PNC Bank shall also notify the Fund as
soon as reasonably practicable whenever income due on
securities is not collected in due course.
15. Duration and Termination. This Agreement shall
continue until terminated by the Fund or by PNC Bank on
sixty (60) days' prior written notice to the other party.
In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the
shareholders of the Fund to dissolve or to function without
a custodian of its cash, securities or other property), PNC
Bank shall not deliver cash, securities or other property of
the Fund to the Fund. It may deliver them to a bank or
trust company of PNC Bank's choice, having an aggregate
capital, surplus and undivided profits, as shown by its last
published report, of not less than twenty million dollars
($20,000,000), as a custodian for the Fund to be held under
terms similar to those of this Agreement. PNC Bank shall
not be required to make any such delivery or payment until
full payment shall have been made to PNC Bank of all of its
fees, compensation, costs and expenses. PNC Bank shall have
a security interest in and shall have a right of setoff
against Property in the Fund's possession as security for
the payment of such fees, compensation, costs and expenses.
16. Notices. All notices and other communications,
including Written Instructions, shall be in writing or by
confirming telegram, cable, telex or facsimile sending
device. Notice shall be addressed (a) if to PNC Bank at PNC
Bank's address: Airport Business Center, International Court
2, 200 Stevens Drive, Lester, Pennsylvania 19113, marked for
the attention of the Custodian Services Department (or its
successor) (b) if to the Fund, at the address of the Fund;
or (c) if to neither of the foregoing, at such other address
as shall have been notified to the sender of any such notice
or other communication. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it shall
be deemed to have been given immediately. If notice is sent
by first-class mail, it shall be deemed to have been given
five days after it has been mailed. If notice is sent by
messenger, it shall be deemed to have been given on the day
it is delivered.
17. Amendments. This Agreement, or any term hereof,
may be changed or waived only by a written amendment, signed
by the party against whom enforcement of such change or
waiver is sought. 18. Delegation. PNC Bank may
assign its rights and delegate its duties hereunder to any
wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i)
PNC Bank gives the Fund thirty (30) days prior written
notice; (ii) the delegate agrees with PNC Bank to comply
with all relevant provisions of the 1940 Act; and (iii) PNC
Bank and such delegate promptly provide such information as
the Fund may request, and respond to such questions as the
Fund may ask, relative to the assignment, including (without
limitation) the capabilities of the delegate.
19. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument. 20. Further Actions. Each party
agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes
hereof.
21. Miscellaneous. This Agreement embodies the entire
agreement and understanding between the parties and
supersedes all prior agreements and understandings relating
to the subject matter hereof, provided that the parties may
embody in one or more separate documents their agreement, if
any, with respect to delegated duties and/or Oral
Instructions. The captions in this Agreement are included
for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect
their construction or effect.
This Agreement shall be deemed to be a contract made in
Pennsylvania and governed by Pennsylvania law, without
regard to principles of conflicts of law. If any provision
of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement
shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below
on the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By:
Title:
MANAGED HIGH
INCOME PORTFOLIO INC.
By:
Title:
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
21
FORM OF
MARKET-MAKING AGREEMENT
______________,
1996
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Gentlemen:
Managed High Income Portfolio Inc., a corporation
formed under the laws of the State of Maryland (the
"Portfolio"), and Smith Barney Inc., a corporation formed
under the laws of the State of Delaware ("Smith Barney"),
confirm their agreement, subject to the terms and conditions
set out below, pursuant to which Smith Barney may engage in
market-making transactions with respect to the shares of the
Common Stock.
1. Definitions.
The following terms have the following meanings
when used in this Agreement:
(a) "Acts" means the Securities Act and the
Investment Company Act collectively.
(b) "Administration Agreement" means the
Administration Agreement between the Portfolio and Smith
Barney Mutual Funds Management Inc.("SBMFM"), formerly known
as Smith, Barney Advisors, Inc., dated as of May 18, 1994.
(c) "Advisers Act" means the Investment Advisers
Act of 1940, as amended.
(d) "Advisers Act Rules" means those rules and
regulations adopted by the Commission under the Advisers
Act.
(e) "Advisory Agreement" means the Transfer and
Assumption of Investment Advisory Agreement among the
Portfolio, Mutual Management Corporation and SBMFM dated as
of November 7, 1994.
(f) "Agreement" means this Market-Making
Agreement as originally executed and as amended, modified,
supplemented or restated from time to time.
(g) "Business Day" means any day on which the
NYSE is open for trading.
(h) "Commission" means the Securities and
Exchange Commission.
(i) "Common Stock" means the Portfolio's Common
Stock, par value $.01 per share.
(j) "Custody Agreement" means the Custody
Agreement between the Portfolio and PNC Bank, National
Association dated as of March 5, 1995.
(k) "Effective Date" means the date on which the
Registration Statement becomes effective.
(l) "Exchange Act" means the Securities Exchange
Act of 1934, as amended.
(m) "Final Amendment" means an amendment to the
Registration Statement necessary to permit the Registration
Statement to become effective.
(n) "Investment Company Act" means the Investment
Company Act of 1940, as amended.
(o) "Investment Company Act Rules" means those
rules and regulations adopted by the Commission under the
Investment Company Act.
(p) "Notification" means a notification of
registration on Form N-8A under the Investment Company Act
on behalf of the Portfolio.
(q) "NYSE" means the New York Stock Exchange,
Inc.
(r) "Prospectus" means the prospectus and
statement of additional information contained in the
Registration Statement.
(s) "Registration Statement" means the
Registration Statement on Form N-2 under the Acts
(Registration Nos. 33-56408 and 811-7396), as supplemented
by any amendments to the Registration Statement, filed by
the Portfolio with the Commission relating to Smith Barney's
market-making activities in the Common Stock.
(t) "Rules and Regulations" means the Investment
Company Act Rules and the Securities Act Rules.
(u) "Securities Act" means the Securities Act of
1933, as amended.
(v) "Securities Act Rules" means the rules and
regulations adopted by the Commission under the Securities
Act.
(w) "Shares" means the Common Stock.
(x) "Smith Barney" means, as the context so
requires, Smith Barney and certain of its affiliates.
(y) "Transfer Agency Agreement" means the
Transfer Agent and Dividend-Paying and Registrar Agreement
between the Portfolio and First Data Investor Services
Group, Inc., formerly known as The Shareholder Services
Group, Inc., dated as of March 18, 1993.
(z) "First Data" means First Data Investor
Services Group, Inc.
2. Secondary Market Activity.
The Portfolio acknowledges that Smith Barney
intends to engage in market-making transactions with respect
to Shares in the over-the-counter market at negotiated
prices relating to the prevailing market prices at the time
of sale of the Shares. The Portfolio acknowledges and
agrees that (i) Smith Barney may act as principal or agent
in such market-making transactions and (ii) Smith Barney is
under no obligation to engage in such market-making
transactions and may at any time discontinue those
transactions at its sole discretion and without notice to
the Portfolio.
3. Payment to Smith Barney Financial Consultants.
The Portfolio acknowledges that Smith Barney
Financial Consultants will receive compensation from Smith
Barney in connection with sales of Shares. In no event,
however, will the Portfolio be obligated to (a) reimburse
Smith Barney for any costs incurred in connection with so
compensating its Financial Consultants or (b) compensate
those Financial Consultants in any way out of its own
assets.
4. Compliance with Applicable Rules.
In engaging in the activities contemplated under
this Agreement, Smith Barney will conform in all material
respects with all state and federal laws relating to the
sale of Shares and with all applicable rules and regulations
of all regulatory bodies, including, without limitation, the
Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and the Rules and Regulations.
Neither Smith Barney nor any other person is authorized by
the Portfolio to give any information or to make any
representations in connection with the sale of Shares, other
than those contained in the Registration Statement or the
Prospectus with respect to the sale of Shares, and in any
information supplemental to the Prospectus specifically
approved by the Portfolio for use in connection with the
offer or sale of Shares, and neither Smith Barney nor any
other person is authorized to act as agent for the Portfolio
in connection with the purchase and sale of Shares to the
public or otherwise.
5. Registration Statement and Prospectus; Market-
Making.
(a) The Portfolio has filed with the Commission,
pursuant to the Acts and the Rules and Regulations, the
Registration Statement, and those amendments to the
Registration Statement as may have been required to have
been made prior to the date of this Agreement. The
Portfolio has furnished Smith Barney with copies of the
Registration Statement and each amendment to the
Registration Statement filed by the Portfolio with the
Commission. If the Registration Statement has become
effective and the Prospectus omits certain information at
the time of effectiveness pursuant to Rule 430A under the
Securities Act, a final prospectus containing that
information will promptly be filed by the Portfolio with the
Commission in accordance with Rule 497(b) of the Securities
Act.
(b) The Portfolio understands that Smith Barney
proposes to make a market in the Shares, as described in the
Prospectus, as soon after the Effective Date (or, if later,
after the date this Agreement is signed) as Smith Barney
deems advisable. The Portfolio confirms that Smith Barney
has been authorized to distribute the Prospectus and any
amendments or supplements to the Prospectus.
6. Representations and Warranties of the Portfolio.
The Portfolio represents and warrants to Smith
Barney that:
(a) on the Effective Date and the date the
Prospectus is first filed with the Commission pursuant to
Rule 497(b) or (h) under the Securities Act and the date
when any post-effective amendment to the Registration
Statement becomes effective or any amendment or supplement
to the Prospectus is filed with the Commission, the
Registration Statement, the Prospectus and any such
amendment or supplement did or will comply in all material
respects with the applicable requirements of the Acts and
the Rules and Regulations, except that the Portfolio makes
no representations, warranties or agreements as to
information contained in or omitted from the Registration
Statement, the Prospectus or any such amendment or
supplement in conformity with written information furnished
to the Portfolio by Smith Barney specifically for inclusion
in such document;
(b) on the Effective Date and when any post-
effective amendment to the Registration Statement becomes
effective, neither the Registration Statement nor any such
amendment did or will contain any untrue statement of a
material fact or omit to state a material fact required to
be stated in it or necessary to make the statements in it
not misleading, except that the Portfolio makes no
representations, warranties or agreements as to information
contained in or omitted from the Registration Statement or
such amendment in reliance upon or in conformity with
written information furnished to the Portfolio by Smith
Barney specifically for inclusion in such document;
(c) on the Effective Date and the date the
Prospectus or any amendment or supplement to the Prospectus
is filed with the Commission, the Prospectus or amendment or
supplement did not contain any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements in it, in light of the circumstances
under which they were made, not misleading, except that the
Portfolio makes no representations, warranties or agreements
as to information contained in or omitted from the
Prospectus or amendment or supplement to the Prospectus in
reliance upon or in conformity with written information
furnished to the Portfolio by Smith Barney specifically for
inclusion in such document;
(d) the Notification complied, and any amendment
to the Notification will comply, in all material respects,
with the requirements of the Investment Company Act;
(e) the Portfolio is not in violation of its
corporate charter or by-laws or in default under any
agreement, indenture or instrument to which the Portfolio is
a party, by which the Portfolio may be bound or to which any
of the properties or assets of the Portfolio is subject or,
to the best knowledge of the Portfolio, in breach or
violation of any judgment, decree, order, rule or regulation
of any court or governmental or regulatory agency or body,
the effect of which violation or default or breach would be
material to the Portfolio;
(f) each of the Advisory Agreement, the
Administration Agreement, the Custody Agreement and the
Transfer Agency Agreement has been duly authorized, executed
and delivered by the Portfolio, complies in all material
respects with all applicable provisions of the Investment
Company Act, the Investment Company Act Rules, the Advisers
Act and the Advisers Act Rules, and, assuming due
authorization, execution and delivery by the other party to
each such agreement, constitutes a legal, valid and binding
obligation of the Portfolio enforceable in accordance with
its terms, except as its enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights and
by general equity principles (regardless of whether
enforceability is considered in a proceeding in equity or at
law);
(g) this Agreement has been duly authorized,
executed and delivered by the Portfolio, complies in all
material respects with all applicable provisions of the
Investment Company Act and the Investment Company Act Rules,
and, assuming due authorization, execution and delivery by
Smith Barney, constitutes the legal, valid and binding
obligation of the Portfolio, enforceable in accordance with
its terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting
creditors' rights and by general equity principles
(regardless of whether enforceability is considered in a
proceeding in equity or at law);
(h) no consent, approval, authorization or order
of any court or governmental agency or body is required for
the execution, delivery and performance of this Agreement,
the Advisory Agreement, the Administration Agreement, the
Custody Agreement and the Transfer Agency Agreement by the
Portfolio, or the consummation by the Portfolio of the
transactions contemplated by each of those agreements,
except those that have been obtained and those that may be
required under the Acts;
(i) the execution, delivery and performance of
this Agreement, the Advisory Agreement, the Administration
Agreement, the Custody Agreement and the Transfer Agency
Agreement, and the consummation by the Portfolio of the
transactions contemplated by each of those agreements, will
not conflict with, result in the creation or imposition of,
any lien, charge or encumbrance upon the assets of the
Portfolio pursuant to the terms of, result in a breach or
violation by the Portfolio of any material terms or
provisions of, or constitute a default by the Portfolio
under, any material contract, including any indenture,
mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Portfolio is a party or
to which its properties is subject, the corporate charter or
by-laws of the Portfolio, or, to the best knowledge of the
Portfolio, any statute (including the Acts), judgment,
decree, order, rule or regulation of any court or
governmental agency or body having jurisdiction over the
Portfolio or any of its property;
(j) to the best of the Portfolio's knowledge,
subsequent to the dates as of which information is given in
the Registration Statement or the Prospectus, there has not
been any material adverse change in, or any adverse
development that materially affects, the business,
properties, financial condition, results of operations, or
prospects of the Portfolio;
(k) KPMG Peat Marwick LLP, whose report is
incorporated by reference into the Prospectus, are
independent public accountants as required by the Acts and
the Rules and Regulations;
(l) the Shares that are issued and outstanding
are validly authorized, issued and outstanding, fully paid
and non-assessable;
(m) the Shares of Common Stock conform in all
material respects to the descriptions of them contained in
the Registration Statement and the Prospectus;
(n) the financial statements of the Portfolio
incorporated by reference into the Registration Statement
present fairly the financial condition of the Portfolio at
the dates indicated in the financial statements and have
been prepared in accordance with generally accepted
accounting principles applied on a consistent basis;
(o) there is no litigation or proceeding pending
or, to the knowledge of the Portfolio, threatened against
the Portfolio that might result in any material adverse
change in the financial condition, results of operations,
business or prospects of the Portfolio or that is required
to be disclosed in the Registration Statement;
(p) there are no material contracts or other
documents that are required to be described in the
Prospectus or filed as exhibits to the Registration
Statement by the Acts or by the Rules and Regulations that
have not been described in the Prospectus or filed as
exhibits to the Registration Statement or incorporated in
the Registration Statement by reference as permitted by the
Rules and Regulations;
(q) the Portfolio is registered with the
Commission under the Investment Company Act as a closed-end,
diversified management investment company and is, and at all
times during the operation of this Agreement will be, in
compliance in all material respects with the terms and
provisions of the Acts;
(r) no person is serving or acting or is proposed
to serve or act as an officer, director or investment
adviser of the Portfolio except in accordance with the
provisions of the Investment Company Act and the Advisers
Act, the Investment Company Rules and the Advisers Act
Rules; and
(s) the Portfolio has been incorporated, is
validly existing and in good standing under the laws of the
State of Maryland, is duly qualified to do business and is
in good standing as a foreign corporation in each
jurisdiction in which its ownership of property or the
conduct of its business requires qualification, and has all
power and authority necessary to own or hold its property
and to conduct its business as described in the Prospectus.
7. Covenants of the Portfolio.
The Portfolio covenants and agrees:
(a) if the Registration Statement has not become
effective by the date of this Agreement, promptly to file
the Final Amendment with the Commission, to use its best
efforts to cause the Registration Statement to become
effective and, as soon as the Portfolio is advised, to
notify Smith Barney when the Registration Statement or any
amendment to it has become effective and, if required, to
file a Prospectus pursuant to Rule 497(b) under the
Securities Act as promptly as practicable, but no later than
the fifth Business Day following the date of the Effective
Date;
(b) if the Registration Statement has become
effective on or before the date of this Agreement and the
Prospectus contained in the Registration Statement omits
certain information at the time of effectiveness pursuant to
Rule 430A under the Securities Act, to file a Prospectus
pursuant to Rule 497(b) under the Securities Act as promptly
as practicable, but no later than the date the Prospectus is
first used after the Effective Date;
(c) not to file any Prospectus or any other
amendment or supplement to the Registration Statement or the
Prospectus unless a copy has first been submitted to Smith
Barney a reasonable time before its filing and Smith Barney
has not reasonably objected to it within a reasonable period
of time after receiving the copy;
(d) to furnish promptly to Smith Barney a
conformed copy of the Registration Statement as originally
filed with the Commission, and each amendment to the
Registration Statement filed with the Commission, including
all consents and exhibits filed with the Registration
Statement;
(e) to deliver to Smith Barney, as soon as the
Registration Statement becomes effective and thereafter when
the Prospectus is required to be delivered under the Acts,
as many copies of the Prospectus and as many conformed
copies of the Registration Statement and each amendment to
the Registration Statement (including exhibits filed with
the Registration Statement or incorporated by reference in
the Registration Statement) as Smith Barney may reasonably
request;
(f) to deliver promptly to Smith Barney the
number of copies of the Prospectus (as amended or
supplemented and including all documents incorporated by
reference in the Prospectus) as Smith Barney may reasonably
request;
(g) if the Commission issues a stop order
suspending the effectiveness of the Registration Statement
or an order pursuant to Section 8(e) of the Investment
Company Act, to make every reasonable effort to obtain the
lifting of the order at the earliest possible time;
(h) to furnish to Smith Barney copies of all
public reports and all financial statements furnished by the
Portfolio to the NYSE or any other securities exchange upon
which the Common Stock is listed or admitted for trading,
pursuant to requirements of or agreements with those
exchanges or to the Commission pursuant to the Exchange Act,
the Investment Company Act or any rule or regulation of the
Commission under the Exchange Act or the Investment Company
Act;
(i) to take whatever actions Smith Barney
reasonably requests to continue the Shares' qualification
for offer and sale under the securities or "blue sky" laws
in jurisdictions where the Shares are qualified for offer
and sale and to qualify the Shares for offer and sale under
the blue sky laws of those jurisdictions reasonably
designated by Smith Barney, except that, under no
circumstances, will the Portfolio be required to qualify as
a foreign corporation or to file a general consent to
service of process in any jurisdiction; and
(j) to use its best efforts to maintain the
Shares' listing on the NYSE or to list the Shares on any
other national securities exchange, or to have the Shares
traded on the NASDAQ National Market System or any other
national market system and to comply with the rules and
regulations of the exchange on which the Shares are listed
or the market system through which the Shares are traded.
8. Conditions of Smith Barney's Market-Making
Activities.
(a) Smith Barney will not undertake market-
making activities with respect to Shares if, on the date of
this Agreement, the representations and warranties of the
Portfolio contained in this Agreement shall be inaccurate,
the Portfolio shall not have performed its obligations under
this Agreement, or any of the following additional terms and
conditions shall not be met:
(i) the Registration Statement has become
effective by 5:30 p.m., New York City time, on the date of
this Agreement, or later date and time to which Smith Barney
has consented in writing;
(ii) the Prospectus has been timely filed
with the Commission in accordance with the provisions of
this Agreement;
(iii) on or before the Effective Date, no
stop order suspending the effectiveness of the Registration
Statement or order pursuant to Section 8(e) of the
Investment Company Act has been issued, and no stop order or
proceeding for an order pursuant to Section 8(e) of the
Investment Company Act has been initiated or threatened by
the Commission;
(iv) any request of the Commission for
inclusion of additional information in the Registration
Statement or the Prospectus or otherwise has been met;
(v) the Portfolio has not filed with the
Commission the Prospectus or any amendment or supplement to
the Registration Statement or the Prospectus without the
consent of Smith Barney, which consent has not been
unreasonably withheld;
(vi) Smith Barney has not discovered and
disclosed to the Portfolio, on or prior to the Effective
Date, that the Registration Statement or the Prospectus or
any amendment or supplement to the Registration Statement or
the Prospectus contains an untrue statement of a fact that,
in the reasonable opinion of counsel to Smith Barney, is, as
a matter of law, material or omits to state a material fact
that, in the reasonable opinion of that counsel, is material
and is required to be stated therein or is necessary to make
the statements therein not misleading; and
(vii) all corporate proceedings and legal
matters incident to the authorization, form and validity of
this Agreement and the Shares and the form of the
Registration Statement and Prospectus, other than financial
statements and other financial data, and all other legal
matters relating to this Agreement and the transactions
contemplated by this Agreement are satisfactory in all
respects to counsel to Smith Barney, and the Portfolio has
furnished to that counsel all documents and information that
counsel may reasonably request to enable counsel to pass
upon those matters.
(b) All opinions, letters, evidence and
certificates described in this Section 8 or elsewhere in
this Agreement will be deemed to be in compliance with the
provisions of this Agreement only if they are in form and
substance reasonably satisfactory to counsel to Smith
Barney.
9. Expenses.
(a) The Portfolio will pay, or cause to be paid,
or reimburse if paid by Smith Barney or other:
(i) all costs and expenses in connection
with the Registration Statement;
(ii) all costs and expenses of maintaining
the qualification of the Shares for sale under the
securities of "blue sky" laws of the various states where
the Shares are qualified or qualifying the Shares for sale
under the securities or "blue sky" laws of such other states
as may be reasonably designated by Smith Barney;
(iii) the costs of preparing and issuing
any certificates that may be issued to represent Shares;
(iv) all expenses in connection with the
printing of any notices of meetings of the Portfolio's
shareholders, proxy and proxy statements and enclosures with
those documents, as well as any other notice or
communication sent to shareholders in connection with any
meeting of the shareholders or otherwise, any annual, semi-
annual or other report or communication sent to the
shareholders, and the expense of sending Prospectuses
relating to the Shares to existing shareholders;
(v) all expenses in connection with the
printing, copying and/or distribution of the Registration
Statement, the Prospectus or any post-effective amendments
or supplements to the Registration Statement or Prospectus;
and
(vi) all expenses in connection with
maintaining or obtaining the listing of the Shares on a
national securities exchange or national market system.
(b) Smith Barney will permit its officers and
employees to serve without compensation as directors and/or
officers of the Portfolio if those employees are duly
elected to those positions.
10. Indemnification and Contribution.
(a) The Portfolio agrees to indemnify Smith
Barney and hold harmless Smith Barney and each person that
controls Smith Barney within the meaning of the Securities
Act (a "Controlling Person") from and against any loss,
claim, damage or liability, joint or several, and any action
with respect to any such loss, claim, damage or liability,
to which Smith Barney or any Controlling Person may become
subject, under the Securities Act or otherwise, insofar as
the loss, claim, damage, liability or action arises out of,
is based upon, or is alleged to arise out of or be based
upon (i) any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, the
Prospectus, or the Registration Statement or the Prospectus
as amended or supplemented, or the omission or alleged
omission to state in any such document a material fact
required to be stated in the document or necessary to make
the statements in the document not misleading, except that
the Portfolio will not be liable to the extent that any such
loss, claim, damage, liability or action arises out of, or
is based upon, or is alleged to arise out of or be based
upon any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration
Statement or the Prospectus or any amendments or supplements
to the Registration Statement or the Prospectus, in reliance
upon or in conformity with written information furnished to
the Portfolio by Smith Barney specifically for inclusion in
the document, (ii) any action taken or omitted to be taken
by Smith Barney with the consent of the Portfolio, (iii)
any action taken or omitted to be taken by the Portfolio,
(iv) any breach by the Portfolio of any representation or
warranty, or any failure by the Portfolio to comply with any
agreement or covenant contained in this Agreement, or (v)
any of the other transactions contemplated by Smith Barney's
market-making activities with respect to the Portfolio, and
will reimburse Smith Barney and each Controlling Person for
any legal and other expenses reasonably incurred by Smith
Barney or the Controlling Person in investigating or
defending or preparing to defend against any such loss,
claim, damage, liability or action, except that the
Portfolio will not be liable for indemnity under paragraph
(a)(v) of this Section 10 to the extent that the action or
omission to which that indemnity relates has been determined
by a court of competent jurisdiction to have resulted
directly from the willful misconduct or gross negligence of
Smith Barney or any Controlling Person.
(b) Smith Barney will indemnify and hold
harmless the Portfolio, each of its directors, each of its
officers who signed the Registration Statement and any
person who controls the Portfolio within the meaning of the
Securities Act from and against any loss, claim, damage or
liability, joint or several, or any action with respect to
any such loss, claim, damage or liability, to which the
Portfolio or any such director, officer or controlling
person may become subject, under the Securities Act or
otherwise, insofar as the loss, claim, damage, liability or
action arises out or, or is based upon, or is alleged to
arise out of or be based upon, any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectus, or the Registration
Statement or the Prospectus as amended or supplemented, or
arises out of, or is based upon, or is alleged to arise out
of or be based upon, the omission or alleged omission to
state in any such documents a material fact required to be
stated in the document or necessary to make the statements
in the document not misleading, but in each case only to the
extent that the untrue statement or alleged untrue statement
or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the
Portfolio by Smith Barney specifically for inclusion in the
document, and will reimburse the Portfolio for any legal and
other expenses reasonably incurred by the Portfolio or any
such director, officer or controlling person in
investigating or defending or preparing to defend against
the loss, claim, damage, liability or action. The indemnity
agreement contained in this Section 10(b) is in addition to
any liability that Smith Barney may otherwise have to the
Portfolio or any of its directors, officers or controlling
persons.
(c) Promptly after receipt by an indemnified
party under this Section 10 of notice of any claim or the
commencement of any action, the indemnified party will
notify the indemnifying party in writing of this claim or
the commencement of that action, except that the failure to
notify the indemnifying party will not relieve the
indemnifying party from any liability that it may have to an
indemnified party under this Section 10 except to the extent
that the indemnifying party has been prejudiced in any
material respect by the failure or from any liability that
it may have to an indemnified party otherwise than under
this Section 10. If any such claim or action is brought
against an indemnified party, and the indemnified party
notifies the indemnifying party of the claim or action, the
indemnifying party will be entitled to participate in the
claim or action and, to the extent the indemnifying party
wishes, jointly with any other similarly notified
indemnifying party, to assume the defense of the claim or
action with counsel satisfactory to the indemnified party.
After the notice from the indemnifying party to the
indemnified party of the indemnifying party's election to
assume the defense of the claim or action, the indemnifying
party will not be liable under this Section 10 for any legal
or other expenses subsequently incurred by the indemnified
party in connection with the defense of the claim or action
other than reasonable costs of investigation and providing
evidence, except that the indemnified party will have the
right to employ counsel to represent the indemnified party,
its officers, directors, employees and controlling persons
who may be subject to liability arising out of any claim or
action with respect to which indemnity may be sought by the
indemnified party and any such officers, directors,
employees or controlling persons if, in the reasonable
judgment of the indemnified party, it is advisable for the
indemnified party to be represented by separate counsel, and
in that event, the fees and reasonable expenses of that
counsel will be paid by the indemnifying party.
(d) If the indemnification provided for in this
Section 10 is unavailable to an indemnified party with
respect to any loss, claim, damage or liability, or any
action with respect to any such loss, claim, damage or
liability referred to in this Section 10, then each
indemnifying party will, in lieu of indemnifying the
indemnified party, contribute to the amount paid or payable
by the indemnified party as a result of the loss, claim,
damage or liability, or action with respect to the loss,
claim, damage or liability in the proportion that is
appropriate to reflect the relative fault of the Portfolio
and Smith Barney with respect to the transaction to which
the loss, claim, damage or liability, or action with respect
to the loss, claim, damage or liability relates, as well as
any other relevant equitable considerations. The relative
fault of the Portfolio and Smith Barney will be determined
by reference to whether the untrue statement of a material
fact or omission or alleged omission to state a material
fact relates to information supplied by the Portfolio or
Smith Barney, the intent of the parties and their relative
knowledge, access to information and opportunity to correct
or prevent the statement or omission, and other relevant
equitable considerations. The Portfolio and Smith Barney
agree that it would not be just and equitable if
contributions pursuant to this Section 10 were to be
determined by a proportionate allocation that does not take
into account the equitable considerations referred to in
this paragraph (d). The amount paid or payable by an
indemnified party as a result of the loss, claim, damage or
liability, or action with respect to the loss, claim, damage
or liability referred to in this Section 10, will be deemed
to include, for purposes of this Section 10, any legal or
other expenses reasonably incurred by the indemnified party
in connection with investigating or defending any such
action or claim. No person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of
the Securities Act) by a court of competent jurisdiction
will be entitled to contribution pursuant to this paragraph
(d) from any person who was not found guilty of fraudulent
misrepresentation.
(e) The indemnity agreement contained in this
Section 10 and the representations, warranties, agreements
and covenants of the Portfolio made in this Agreement will
remain in full force and effect regardless of any
termination or amendment of this Agreement undertaken
pursuant to Section 11 of this Agreement or any
investigation made by or on behalf of an indemnified party.
11. Continuation, Amendment or Termination of
Agreement.
(a) This Agreement will become effective on the
Effective Date and will continue for an initial two-year
term and will continue thereafter, so long as such
continuance is specifically approved at least annually (i)
by the Board of Directors of the Portfolio or (ii) by a vote
of a majority of the outstanding voting securities of the
Portfolio entitled to vote, so long as in either case, the
continuance is also approved by a majority of the directors
of the Portfolio who are not interested persons of the
Portfolio or Smith Barney by vote cast in person at a
meeting called for the purpose of voting on the approval.
(b) This Agreement (i) may be terminated by the
Portfolio at any time on written notice to Smith Barney;
(ii) may be terminated by Smith Barney at any time on
written notice to the Portfolio; and (iii) will terminate
automatically in the event of its assignment by either the
Portfolio or Smith Barney.
(c) Upon termination of this Agreement, the
obligations of the Portfolio and Smith Barney under this
Agreement will cease and terminate as of the date of the
termination, except for any obligation to respond with
respect to a breach of this Agreement committed prior to the
termination.
(d) This Agreement may be amended at any time by
mutual consent of the Portfolio and Smith Barney except
that such consent on the part of the Portfolio must have
been approved (i) by the Board of Directors of the
Portfolio, or by a vote of a majority of the outstanding
voting securities of the Portfolio entitled to vote and (ii)
by vote of a majority of the directors of the Portfolio who
are not interested persons of the Portfolio cast in person
at a meeting called for the purpose of voting upon the
amendment.
(e) For purposes of this Section 11, the terms
"vote of a majority of the outstanding voting securities" of
the Portfolio, and "interested persons" and "assignment"
have the meanings given to them in the Investment Company
Act.
12. Notices.
Any notice by the Portfolio to Smith Barney will
be sufficient if given in writing, by telegraph or by
facsimile addressed to Smith Barney at 388 Greenwich
Street, New York, New York 10013, and any notice by Smith
Barney to the Portfolio will be sufficient if given in
writing, by telegraph or by facsimile addressed to the
Portfolio at 388 Greenwich Street, New York, New York 10013,
Attention: Ms. Christina T. Sydor.
13. Parties.
This Agreement will inure to the benefit of, and
be binding upon, Smith Barney and the Portfolio and their
respective successors. This Agreement and its terms and
provisions are for the sole benefit of only those persons,
except that (a) the representations, warranties, indemnities
and agreements of the Portfolio contained in this Agreement
will also be deemed to be for the benefit of the person or
persons controlling Smith Barney within the meaning of
Section 15 of the Securities Act and (b) the indemnity
agreement of Smith Barney contained in Section 10(b) of
this Agreement will be deemed to be for the benefit of the
directors of the Portfolio and officers of the Portfolio who
have signed the Registration Statement and any person
controlling the Portfolio. Nothing in this Agreement is
intended or should be construed in any way to give any
person other than the persons referred to in this Section 13
any legal or equitable right, remedy or claim under, or with
respect to, this Agreement or any provision contained in
this Agreement.
14. Governing 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 executed in one or more
counterparts and, if executed in more than one counterpart,
the executed counterparts will each be deemed to be an
original but all such counterparts will together constitute
one and the same instrument.
16. Headings.
The headings used in this Agreement have been
inserted for convenience of reference only and are not
intended to be part of, or to affect the meaning or
interpretations of, this Agreement.
* * * * *
If the foregoing correctly sets forth the agreement
between the Portfolio and Smith Barney, please indicate
Smith Barney's acceptance in the space provided for that
purpose below.
Very truly yours,
MANAGED HIGH INCOME
PORTFOLIO INC.
By:
Name:
Title:
Accepted:
SMITH BARNEY INC.
By:
Name:
Title:
Independent Auditors' Consent
To the Shareholders and Directors of the
Managed High Income Portfolio Inc.
We consent to the use of our report dated April 26, 1996
incorporated herein by reference and to the references to our
Firm under the headings "Financial Highlights" in the
Prospectus and "Independent Public Accountants" in the
Statement of Additional Information.
KPMG PEAT MARWICK LLP
New York, New York
June 27, 1996
[ARTICLE] 6
[CIK] 0000895523
[NAME] SMITH BARNEY MANAGED HIGH INCOME FUND, INC.
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] FEB-29-1996
[PERIOD-END] FEB-29-1996
[INVESTMENTS-AT-COST] 460,186,019
[INVESTMENTS-AT-VALUE] 472,375,400
[RECEIVABLES] 10,923,224
[ASSETS-OTHER] 2,727
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 483,301,351
[PAYABLE-FOR-SECURITIES] 4,304,157
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 0
[TOTAL-LIABILITIES] 6,477,086
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 502,094,948
[SHARES-COMMON-STOCK] 500,000,000
[SHARES-COMMON-PRIOR] 500,000,000
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (1,379,815)
[ACCUMULATED-NET-GAINS] (36,122,231)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 12,189,381
[NET-ASSETS] 476,824,265
[DIVIDEND-INCOME] 48,608,160
[INTEREST-INCOME] 3,220,307
[OTHER-INCOME] (70,313)
[EXPENSES-NET] 5,823,831
[NET-INVESTMENT-INCOME] 45,933,323
[REALIZED-GAINS-CURRENT] (9,929,419)
[APPREC-INCREASE-CURRENT] 38,580,381
[NET-CHANGE-FROM-OPS] 74,799,883
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 53,548,915
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 1,215,693
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 20,035,275
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 4,253,885
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 5,823,831
[AVERAGE-NET-ASSETS] 471,452,720
[PER-SHARE-NAV-BEGIN] 10.88
[PER-SHARE-NII] 1.13
[PER-SHARE-GAIN-APPREC] 0.65
[PER-SHARE-DIVIDEND] 1.27
[PER-SHARE-DISTRIBUTIONS] 1.27
[RETURNS-OF-CAPITAL] 0.03
[PER-SHARE-NAV-END] 11.36
[EXPENSE-RATIO] 1.24
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
