THE HIGH YIELD INCOME FUND, INC.
GATEWAY CENTER THREE
NEWARK, NEW JERSEY 07102
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
--------------------
To Our Stockholders:
Notice is hereby given that the 2004 Annual Meeting of Stockholders
(the Meeting) of The High Yield Income Fund, Inc. (the Fund) will be held on
December 7, 2004, at 10:00 a.m., Eastern Standard time, at 100 Mulberry Street,
Gateway Center Three, 14th Floor, Newark, New Jersey 07102, for the following
purposes:
1. To elect three directors.
2. To consider and act upon any other business as may
properly come before the Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on October 12,
2004 as the record date for the determination of stockholders entitled to vote
at the Meeting or any adjournment thereof.
Deborah A. Docs
SECRETARY
Dated: November 16, 2004
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WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE. IN ORDER
TO AVOID THE ADDITIONAL EXPENSE TO THE FUND OF FURTHER SOLICITATION, WE ASK
YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
--------------------------------------------------------------------------------
THE HIGH YIELD INCOME FUND, INC.
GATEWAY CENTER THREE
NEWARK, NEW JERSEY 07102
--------------------
PROXY STATEMENT
--------------------
This Proxy Statement is furnished by the Board of Directors of The
High Yield Income Fund, Inc. (the Fund) in connection with the Fund's
solicitation of proxies for use at the Annual Meeting of Stockholders to be held
on December 7, 2004 at 10:00 a.m., Eastern Standard Time, at 100 Mulberry
Street, Gateway Center Three, 14th Floor, Newark, New Jersey 07102, the Fund's
principal executive office. The purpose of the Meeting and the matters to be
acted upon are set forth in the accompanying Notice of Annual Meeting.
If the accompanying form of proxy is executed properly and returned,
shares represented by it will be voted at the Meeting in accordance with the
instructions on the proxy; if no instructions are specified, shares will be
voted FOR each of the nominees listed in Proposal No. 1. A proxy may be revoked
at any time prior to the time it is voted by written notice to the Secretary of
the Fund, by submission of a subsequent proxy, or by attendance and voting at
the Meeting. If sufficient votes to approve any proposed item are not received,
the Chairman of the Meeting may adjourn the Meeting to permit further
solicitation of proxies. In the event that a meeting is adjourned, the same
procedures will apply at a later meeting date.
Since Proposal No.1 is to be determined by a plurality of the votes
cast, each "broker non-vote" (that is, a proxy from a broker or nominee
indicating that such person has not received instructions from the beneficial
owner or other person entitled to vote shares on a particular matter with
respect to which the broker or nominee does not have discretionary power) and
abstention will be considered present for purposes of determining the existence
of a quorum for the transaction of business but, not being cast, will have no
effect on the outcome of such matter.
The close of business on October 12, 2004 has been fixed as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the Meeting. On that date, the Fund had 11,583,505 shares of Common Stock
outstanding and entitled to vote. The presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting shall constitute a quorum. Each share will be entitled to one vote
at the Meeting. It is expected that the Notice of Annual Meeting, Proxy
Statement and accompanying form of proxy will first be mailed to stockholders of
record on or about November 16, 2004. The Fund will furnish, without charge, a
copy of the annual report to a shareholder upon request to Equiserve, Inc. by
calling 1 (800) 451-6788.
As of October 12, 2004, there were no owners of record or beneficial
owners that held more than 5% of the outstanding shares of the Fund. As of
October 12, 2004, the percentage of shares beneficially owned by any Director or
Nominee and by all Directors and Officers of the Fund as a group, did not exceed
1% of the outstanding shares of common stock of the Fund.
The expenses of solicitation will include reimbursement of brokerage
firms and others for expenses in forwarding proxy solicitation material to
beneficial owners. The solicitation of proxies will be largely by mail but may
include, without cost to the Fund, telephonic, telegraphic or oral
communications by regular employees of Wachovia Securities LLC (Wachovia
Securities). In addition, the Board of Directors of the Fund has authorized
management to retain, at their discretion, Georgeson Shareholder Communications,
Inc., a proxy solicitation firm, to assist in the solicitation of proxies for
this Meeting. The cost of solicitation, including specified expenses, is
estimated to be approximately $5,000 and will be borne by the Fund.
1
Prudential Investments LLC (PI or the Manager), Gateway Center Three,
Newark, New Jersey 07102, serves as the Fund's Manager under a management
agreement dated as of December 15, 1988 (the Management Agreement). Investment
advisory services are provided to the Fund by PI through its affiliate,
Prudential Investment Management, Inc. (PIM or the Subadviser), Gateway Center
Two, Newark, New Jersey 07102, under a Subadvisory Agreement dated December 15,
1988. Both PI and PIM are indirect, wholly owned subsidiaries of Prudential
Financial, Inc. (Prudential). As of September 30, 2004, PI, a wholly owned
subsidiary of Prudential, served as the manager to open-end investment
companies, and as manager or administrator to closed-end investment companies
with aggregate assets of approximately $88.4 billion. The Fund has a Board of
Directors which, in addition to overseeing the actions of the Fund's Manager and
Subadviser, decides upon matters of general policy.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The Fund's Articles of Incorporation, as amended and restated (the
Charter) provide that the Board of Directors will be divided into three classes
of Directors, as nearly equal in number as possible. Each Class serves for three
years with one class being elected each year. Each year the term of office of
one class will expire. The Board of Directors is currently comprised of nine
Directors apportioned among the classes as indicated below:
Class I - Messrs.Carson, La Blanc and McCorkindale (whose terms expire
in 2006)
Class II - Ms. Smith and Messrs. Gunia and Whitehead (whose terms
expire in 2004)
Class III - Ms. Rice and Messrs. Redeker and Stoneburn (whose terms
expire in 2005)
Class III currently has one vacancy: Stephen P. Munn retired from the
Board of Directors effective November 30, 2003. Mr. Munn's resignation was not
caused by any disagreement with management.
All of the current members of the Board of Directors have previously
been elected by stockholders.
Pertinent information about each nominee is set forth below.
At each Annual Meeting, Directors will be elected to hold office until
the earlier to occur of (i) the next meeting of stockholders at which Directors
of that Class are elected and their successors are elected and qualified or (ii)
the expiration of their terms in accordance with the Fund's retirement policy or
(iii) until they resign or are removed as permitted by law. The Fund's
retirement policy generally calls for the retirement of Directors on December 31
of the year in which they reach the age of 75.
2
Three of the Directors, Messrs. Gunia and Whitehead and Ms. Smith, are
standing for re-election by stockholders to serve as Class II Directors until
the Fund's 2007 Annual Meeting of Stockholders and until their successors have
been elected and qualified. It is the intention of the persons named in the
enclosed proxy to vote in favor of the election of Messrs. Gunia and Whitehead
and Ms. Smith. Messrs. Gunia and Whitehead and Ms. Smith have consented to be
named in this Proxy Statement and to serve as Directors if elected. The
Directors have no reason to believe that any of the nominees named above will
become unavailable for election as a Director, but if that should occur before
the Meeting, proxies will be voted for such persons as the Directors may
recommend.
MANAGEMENT OF THE FUND
Information pertaining to the Directors of the Fund and Nominees is
set forth below. Directors who are not deemed to be "interested persons" of the
Fund, as defined in the Investment Company Act of 1940, as amended (the
Investment Company Act or the 1940 Act) are referred to as "Independent
Directors". Directors who are deemed to be "interested persons" of the Fund are
referred to as "interested Directors". The "Fund Complex" consists of the Fund
and any other investment companies managed by PI. None of the Nominees is
related to another. None of the Fund's Independent Directors nor persons
nominated to become Independent Directors owns shares of Prudential or its
affiliates.
3
CLASS II DIRECTORS (NOMINEES FOR RE-ELECTION
FOR TERM EXPIRING 2007)
NUMBER OF
TERM OF PORTFOLIOS IN
POSITION(S) OFFICE AND FUND COMPLEX+ OTHER
NAME, ADDRESS* HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS**
AND AGE THE FUND TIME SERVED DURING PAST FIVE YEARS DIRECTOR HELD BY DIRECTOR
---------------- --------- ------------ ---------------------- -------------- ----------------
INDEPENDENT DIRECTORS
Robin B. Smith (65) Director Since Chairman of the Board 99 Director of BellSouth
(Class II***) 2003 (since January 2003) of Corporation (since
Publishers Clearing 1992).
House (direct marketing);
formerly Chairman and
Chief Executive Officer
(August 1996-January
2003) of Publishers
Clearing House.
Clay T. Whitehead Director Since President (since 1983) 98 Director (since 2000)
(66) (Class II***) 2003 of National Exchange of The High Yield
Inc.(new business
Plus Fund, Inc.
development firm).
INTERESTED DIRECTOR
Robert F. Gunia Vice Since Chief Administrative Officer 175 Vice President and
(57)++ President 1996 (since June 1999) of PI; Director (since May
and Director Executive Vice President 1989) and Treasurer
(Class II***) and Treasurer (since (since 1999) of The
January 1996) of PI; President Asia Pacific Fund, Inc.
(since April 1999) of PIMS;
Corporate Vice President
(since September 1997) of
The Prudential Insurance
Company of America
(Prudential); Director,
Executive Vice President
and Chief Administrative
Officer (since May 2003)
of American Skandia
Investment Services,
Inc, American
Skandia Advisory
Services, Inc. and
American Skandia Fund
Services, Inc.;
Executive Vice President
(since March 1999)
and Treasurer (since
May 2000) of
Prudential Mutual Fund
Services LLC; formerly
Senior Vice President
(March 1987-May 1999)
of Prudential Securities
Incorporated (PSI).
4
OTHER DIRECTORS (NOT CURRENTLY UP FOR RE-ELECTION)
NUMBER OF
TERM OF PORTFOLIOS IN
POSITION(S) OFFICE AND FUND COMPLEX+ OTHER
NAME, ADDRESS* HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS**
AND AGE THE FUND TIME SERVED DURING PAST FIVE YEARS DIRECTOR HELD BY DIRECTOR
---------------- --------- ------------ ---------------------- -------------- ----------------
INDEPENDENT DIRECTORS
David E. A. Carson Director Since Director (January 2000 97 Director of United
(70) (Class I***) 2003 to May 2000), Chairman Illuminating and UIL
(January 1999 to Holdings (utility
December 1999), Chairman company) since May
and Chief Executive 1993.
Officer (January 1998 to
December 1998) and
President, Chairman and
Chief Executive Officer
(1983-1997) of People's
Bank.
Robert E. La Blanc Director Since President (since 1981) 100 Director of Storage
(70) (Class I***) 2003 of Robert E. La Blanc Technology
Associates, Inc. Corporation
(telecommunications); (since 1979)
formerly General Partner (technology);
at Salomon Brothers and Chartered
Vice-Chairman of Semiconductor
Continental Telecom; Manufacturing, Ltd.
Trustee of Manhattan (since 1998);
College. Titan Corporation
(electronics) (since
1995); Computer
Associates
International, Inc.
(since 2002)
(software company);
FiberNet Telecom
Group, Inc. (since
2003) (telecom
company); Director
(since April 1999)
of The High Yield
Plus Fund, Inc.
5
NUMBER OF
TERM OF PORTFOLIOS IN
POSITION(S) OFFICE AND FUND COMPLEX+ OTHER
NAME, ADDRESS* HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS**
AND AGE THE FUND TIME SERVED DURING PAST FIVE YEARS DIRECTOR HELD BY DIRECTOR
---------------- --------- ------------ ---------------------- -------------- ----------------
Douglas H. Director Since Chairman (since February 93 Director of Gannett
McCorkindale (Class I***) 2003 2001), Chief Executive Co., Inc., Director of
(65) Officer (since June Continental
2000) and President Airlines, Inc. (since
(since September 1997) May 1993); Director of
of Gannett Co. Inc. Lockheed Martin Corp.
(publishing and media); (aerospace and
formerly Vice Chairman defense)
(March 1984-May 2000) of (since May 2001);
Gannett Co. Inc. Director of the High
Yield Plus Fund, Inc.
(since 1996).
Richard A. Redeker Director Since Management Consultant; 94 --
(61) (Class III***) 1993 Director of Invesmart,
Inc.(since 2001) and
Director of Penn Tank
Lines, Inc. (since 1999).
Stephen D. Stoneburn Director Since President and Chief 97 --
(61) (Class III***) 2003 Executive Officer (since
June 1996) of Quadrant
Media Corp. (a
publishing company);
formerly President (June
1995-June 1996) of Argus
Integrated Media, Inc.;
Senior Vice President
and Managing Director
(January 1993-1995) of
Cowles Business Media
and Senior Vice
President of Fairchild
Publications, Inc.
(1975-1989).
6
INTERESTED DIRECTORS
NUMBER OF
TERM OF PORTFOLIOS IN
POSITION(S) OFFICE AND FUND COMPLEX+ OTHER
NAME, ADDRESS* HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS**
AND AGE THE FUND TIME SERVED DURING PAST FIVE YEARS DIRECTOR HELD BY DIRECTOR
---------------- --------- ------------ ---------------------- -------------- ----------------
INTERESTED DIRECTOR
Judy A. Rice (56)++ President Since 2003 President, Chief 101 --
and Executive Officer, Chief
Director Since 2000 Operating Officer and
(Class III***) Officer-In-Charge (since
2003) of PI;
Director,
Officer-in-Charge,
President, Chief
Executive Officer
and Chief Operating
Officer (since May
2003) of American
Skandia Advisory
Services, Inc. and
American Skandia
Investment Services,
Inc.; Director,
Officer-in- Charge,
President, Chief
Executive Officer
(since May 2003) of
American Skandia
Fund Services, Inc.;
Vice President
(since February
1999) of Prudential
Investment
Management Services;
President, Chief
Executive Officer
and
Officer-In-Charge
(since April 2003)
of Prudential Mutual
Fund Services LLC;
formerly various
positions to Senior
Vice President
(1992-1999) of
Prudential
Securities; and
various positions to
Managing Director
(1975-1992) of
Salomon Smith
Barney; Member of
Board of Governors
of the Money
Management
Institute.
7
------------------
* Unless otherwise indicated, the address of each Director or nominee is c/o
Prudential Investments LLC (PI), Gateway Center Three, 100 Mulberry Street,
Newark, NJ 07102.
** This column includes only directorships of companies required to register,
or file reports with the Securities and Exchange Commission (the SEC) under
the Securities Exchange Act of 1934 (that is, "public companies") or other
investment companies registered under the 1940 Act.
*** The Fund's Charter and Amended and Restated Bylaws provide that the Board
of Directors is divided into three classes of Directors, as nearly equal in
number as possible. Each Class serves for a term of three years, with one
class being elected each year. In addition, the Board of Directors has
adopted a retirement policy which calls for the retirement of each Director
on December 31 of the year in which the Director reaches the age of 75. The
table shows the year in which each Director took office as a Director or
officer.
+ The Fund Complex consists of all investment companies managed by PI. The
Funds for which PI serves as manager include JennisonDryden Mutual Funds,
Strategic Partners Funds, The Prudential Variable Contract Accounts 2, 10,
11, The Target Portfolio Trust, The Prudential Series Fund, Inc., American
Skandia Trust, and Prudential's Gibraltar Fund.
++ Ms. Rice and Mr. Gunia are each deemed to be an "Interested Director"
because they are officers of the Fund.
8
COMPENSATION
Pursuant to the Management Agreement with the Fund, the Manager pays
all compensation of officers and employees of the Fund as well as the fees and
expenses of all Interested Directors of the Fund.
Currently, each Independent Director who serves on the Board of the
Fund is paid annual fees as set forth below for his or her service on the Board
of the Fund. The Directors of the Fund are currently paid a fee of $1,000 per
meeting. Interested Directors will continue to receive no compensation from any
Fund. Board Members will continue to be reimbursed for any expenses incurred in
attending meetings and for other incidental expenses by the Fund. Board fees are
reviewed periodically by the Fund's Board.
Independent Directors may defer receipt of their Directors' fees
pursuant to a deferred fee agreement with the Fund. Under the terms of such
agreement, the Fund accrues deferred Directors' fees daily which, in turn,
accrues interest at a rate equivalent to the prevailing rate of 90-day U.S.
Treasury bills at the beginning of each calendar quarter or, at the daily rate
of return of any Fund in the Fund Complex chosen by the Director. The Fund's
obligation to make payments of deferred Directors' fees, together with interest
thereon, is a general obligation of the Fund.
The Fund has no retirement or pension plan for its Directors.
The following table sets forth the aggregate compensation paid by the
Fund for the fiscal year ended August 31, 2004 to the Independent Directors. The
table also shows aggregate compensation paid to those Directors for service on
the Fund's Board and the Board of any other investment company in the Fund
Complex, for the calendar year ended December 31, 2003.
COMPENSATION PAID TO INDEPENDENT DIRECTORS
PENSION OR TOTAL 2003
RETIREMENT ESTIMATED COMPENSATION FROM
AGGREGATE BENEFITS ACCRUED ANNUAL FUND AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID TO
NAME OF INDEPENDENT DIRECTOR, POSITION(1) FROM FUND EXPENSES RETIREMENT INDEPENDENT DIRECTORS
------------------------------------ -------------- -------------- -------------- -------------------
David E.A. Carson $ 659 None None $ 89,500 (37/90)(3)
Delayne Dedrick Gold(4) $3,000 None None $216,300 (8/85)(3)
Robert E. La Blanc $2,657 None None $195,800 (42/98)(3)
Thomas T. Mooney(2),(4) $2,000 None None $224,300 (6/81)(3)
Douglas H. McCorkindale(2) $2,654 None None $159,800 (38/91)(3)
Stephen P. Munn(6) $2,000 None None $166,300 (42/98)(3)
Richard A. Redeker $3,659 None None $169,800 (38/92)(3)
Robin B. Smith(2) $2,657 None None $173,500 (41/97)(3)
Stephen D. Stoneburn $2,000 None None $181,300 (40/95)(3)
Nancy H. Teeters(5) $1,325 None None $140,000 (37/90)(3)
Louis A. Weil, III(4) $2,000 None None $158,800 (5/80)(3)
Clay T. Whitehead $ 666 None None $223,300 (41/96)(3)
---------------
(1) Interested Directors do not receive any compensation from the Fund or any
fund in the Fund Complex and therefore are not shown in the Compensation
Table.
(2) Although the last column shows the total amount paid to Directors from the
Fund Complex during the calendar year ended December 31, 2003, such
compensation was deferred at the election of Messrs. McCorkindale and
Mooney and Ms. Smith, in total or in part, under the Fund's deferred fee
agreements. Including accrued interest and the selected Prudential Fund's
rate of return on amounts deferred through December 31, 2003, the total
value of compensation for the year amounted to $274,573 and $291,363 for
Messrs. McCorkindale and Mooney, respectively, and $388,622 for Ms. Smith.
(3) Indicates number of funds/portfolios in Fund Complex (including the Fund)
at December 31, 2003 to which aggregate compensation relates.
(4) Effective December 4, 2003, Ms. Gold and Messrs. Mooney and Weil ceased
being Directors for the Fund, respectively.
(5) Effective April 23, 2003, Nancy H. Teeters became a Director Emeritus.
(6) Effective November 30, 2003, Mr. Munn ceased to be a Director of the Fund.
9
If elected, the directors will hold office generally without limit
except that (a) any director may resign; (b) any director may be removed, but
only for cause and only by the holders of at least 80% of the combined voting
power of all classes of shares of capital stock entitled to be voted generally
for the election for Directors; and (c) the Fund's retirement policy generally
calls for the retirement of Directors on December 31 of the year in which they
reach the age of 75. In the event of a vacancy on the Board, the remaining
directors may fill such vacancy by appointing another director, so long as
immediately after such appointment, at least two-thirds of the directors have
been elected by stockholders. A Director so appointed by the Board will serve
for the remainder of the term of the class of Directors in which such vacancy
occurred.
The following tables set forth the dollar range of equity securities
in the Fund beneficially owned by each Director or Nominee, and, on an aggregate
basis, in all registered investment companies overseen by that Director or
Nominee in the Fund Complex as of August 31, 2004.
SHARE OWNERSHIP TABLE--INDEPENDENT DIRECTORS AND NOMINEES
AGGREGATE DOLLAR RANGE
OF EQUITY SECURITIES IN
ALL FUNDS OVERSEEN
DOLLAR RANGE OF EQUITY (OR TO BE OVERSEEN)
SECURITIES IN BY DIRECTOR OR NOMINEE IN
NAME OF DIRECTOR FUND FUND COMPLEX
---------------- -------------------- ----------------------
David E. A. Carson None Over $100,000
Robert E. La Blanc None Over $100,000
Douglas H. McCorkindale None Over $100,000
Richard A. Redeker None Over $100,000
Robin B. Smith None Over $100,000
Stephen D. Stoneburn None Over $100,000
Clay T. Whitehead None Over $100,000
SHARE OWNERSHIP TABLE--INTERESTED DIRECTORS
AGGREGATE DOLLAR RANGE
OF EQUITY SECURITIES IN
DOLLAR RANGE OF EQUITY ALL FUNDS OVERSEEN
SECURITIES IN BY DIRECTOR IN
NAME OF DIRECTOR FUND FUND COMPLEX
--------------- -------------------- --------------------
Judy A. Rice None Over $100,000
Robert F. Gunia None Over $100,000
None of the Independent Directors or Nominees, or any member of
his/her immediate family owned beneficially or of record any securities in an
investment adviser or principal underwriter of the Fund or a person (other than
a registered investment company) directly or indirectly "controlling,"
"controlled by," or "under common control with" (within the meaning of the 1940
Act) an investment adviser or principal underwriter of the Fund as of August 31,
2004.
10
STANDING BOARD COMMITTEES
There were four regularly scheduled meetings and two special telephone
meetings of the Fund's Board of Directors for the fiscal year ended August 31,
2004. The Board of Directors has established three standing Committees in
connection with the governance of the Fund--Audit, Nominating and Governance,
and Valuation. For the fiscal year ended August 31, 2004, each of the incumbent
Directors attended 75% or more of the total number of meetings of the Board of
Directors and all Committees of which he or she was a member.
The Audit Committee consists of Messrs. Carson (Chair), Stoneburn and
Whitehead and Ms. Smith (ex-officio). The Fund's Board of Directors has adopted
a written charter for the Audit Committee, a copy of which is set forth as
Appendix B. The responsibilities of the Audit Committee are to assist the Board
of Directors in overseeing the Fund's independent registered public accounting
firm, accounting policies and procedures, and other areas relating to the Fund's
auditing processes. The Audit Committee is responsible for pre-approving all
audit services and any permitted non-audit services to be provided by the
independent registered public accounting firm directly to the Fund. The Audit
Committee is also responsible for pre-approving permitted non-audit services to
be provided by the independent registered public accounting firm to (1) the
Manager and (2) any entity in a control relationship with the Manager that
provides ongoing services to the Fund, provided that the engagement of the
independent registered public accounting firm relates directly to the operation
and financial reporting of the Fund. The scope of the Audit Committee's
responsibility is oversight. It is Management's responsibility to maintain
appropriate systems for accounting and internal control and the independent
registered public accounting firm's responsibility to plan and carry out an
audit in accordance with the Standards of the Public Company Accounting
Oversight Board (United States). The audit Committee met five times during the
fiscal year ended August 31, 2004.
The Nominating and Governance Committee of the Board of Directors is
responsible for nominating directors and making recommendations to the Board
concerning Board composition, committee structure and governance, director
education, and governance practices. The members of the Nominating and
Governance Committee are Mr. Redeker (Chair), Mr. LaBlanc, Mr. McCorkindale and
Ms. Smith (ex-officio). The Board has determined that each member of the
Nominating and Governance Committee is not an "interested person" of the Fund as
defined in Section 2(a)(19) of the 1940 Act. The members of the Nominating and
Governance Committee are also independent, as independence for nominating
committee members is defined in the listing standards applicable to the Fund.
The Nominating and Governance Committee met once during the fiscal
year ended August 31, 2004. The Fund's Board of Directors has adopted a charter
for its Nominating and Governance Committee, a copy of which is attached as
Appendix C. Pursuant to the charter, the Nominating and Governance Committee
identifies, evaluates, selects and nominates, or recommends to the Board of
Directors, candidates for the Board.
The Nominating and Governance Committee may consider recommendations
by business and personal contacts of current Board members, and by executive
search firms which the Committee may engage from time to time to identify and
evaluate potential nominees. The Nominating and Governance Committee will
evaluate candidates' qualifications for Board membership and their independence
from management and principal service providers. A description of the process
and criteria used by the Nominating and Governance Committee is included in
Appendix C. The Nominating and Governance Committee will consider and evaluate
candidates submitted by stockholders on the basis of the same criteria and in
the same manner as that used to consider and evaluate candidates submitted from
other sources. The Nominating and Governance Committee has not established
specific, minimum qualifications that it believes must be met by a board
nominee. In evaluating board nominees, the Nominating and Governance Committee
considers, among other things, an individual's background, skills, and
experience; whether the individual is an "interested person" as defined in the
1940 Act; and whether the individual would be deemed an "audit committee
financial expert" within the meaning of applicable Commission rules. The
Nominating and Governance Committee also considers whether the individual's
background, skills, and experience will complement the background, skills, and
experience of other nominees and will contribute to the diversity of the Board.
11
Before the Nominating and Governance Committee decides to nominate an
individual to the Board, Committee members and other Board members customarily
interview the individual in person. In addition, the individual customarily is
asked to complete a detailed questionnaire which is designed to elicit
information which must be disclosed under Commission and stock exchange rules
and to determine whether the individual is subject to any statutory
disqualifications from serving on the board of a registered investment company.
Stockholders of the Fund can communicate directly with the Board of
Directors by writing to the Chair of the Board, The High Yield Income Fund,
Inc., P.O. Box 13964, Philadelphia, PA 19176. Stockholders can communicate
directly with an individual Director by writing to that director at The High
Yield Income Fund, Inc., P.O. Box 13964, Philadelphia, PA 19176. Such
communications to the Board or individual directors are not screened before
being delivered to the addressee.
The Valuation Committee consists of at least two Board members or an
officer of the Fund and one Board member (in both instances the Valuation
Committee may include employees of the Manager who may constitute a majority of
the Valuation Committee). The Valuation Committee supervises the valuation of
the Fund's portfolio securities and other assets and meets on an as needed
basis. The Valuation Committee met two times during the fiscal year ended August
31, 2004.
The executive officers of the Fund, other than as shown above,
are:Deborah A. Docs, Secretary, having held such office since February 1999 and
the office of Assistant Secretary from February 1997 through February 1999,
William V. Healey, Chief Legal Officer (since May 2004), Jonathan D. Shain,
Assistant Secretary, (since May 2004), Grace C. Torres, Treasurer and Principal
Financial and Accounting Officer, having held such office since February 1997
and Lee D. Augsburger, Chief Compliance Officer, (since February 2004). Ms. Docs
is 46 years old and is a Vice President and Corporate Counsel (since January
2001) of Prudential, Vice President and Assistant Secretary (since December
1996) of PI, Vice President and Assistant Secretary (since May 2003) of American
Skandia Investment Services, Inc. Mr. Healey is 51 years old and is Chief Legal
Officer (since May 2004) of Prudential; Vice President and Associate General
Counsel (since 1998) of Prudential; Executive Vice President and Chief Legal
Officer (since February 1999) of Prudential Investments LLC; Senior Vice
President, Chief Legal Officer and Secretary (since December 1998) of Prudential
Investment Management Services LLC; Executive Vice President and Chief Legal
Officer (since February 1999) of Prudential Mutual Fund Services LLC; Vice
President and Secretary (since October 1998) of Prudential Investment
Management, Inc.; Executive Vice President and Chief Legal Officer (since May
2003) of American Skandia Investment Services, Inc., American Skandia Fund
Services, Inc. and American Skandia Advisory Services, Inc.; Director (June
1999-June 2002 and June 2003-present) of ICI Mutual Insurance Company; prior to
August 1998, Associate General Counsel of the Dreyfus Corporation (Dreyfus), a
subsidiary of Mellon Bank, N.A. (Mellon Bank), and an officer and/or director of
various affiliates of Mellon Bank and Dreyfus. Mr. Shain is 46 years old and is
Vice President and Corporate Counsel (since August 1998) of Prudential; Vice
President and Assistant Secretary (since May 2003) of American Skandia
Investment Services, Inc. and American Skandia Fund Services Inc. Ms. Torres is
45 years old and is Senior Vice President (since January 2000) of PI; Senior
Vice President and Assistant Treasurer (since May 2003) of American Skandia
Investment Services, Inc. and American Skandia Advisory Services, Inc.; formerly
First Vice President (December 1996-January 2000) of PI and First Vice President
(March 1993-1999) of Prudential Securities. Mr. Augsburger is 45 years old and
is Vice President and Chief Compliance Officer (since May 2003) of PI; Vice
President and Chief Compliance Officer (since October 2000) of Prudential
Investment Management, Inc.; formerly Vice President and Chief Legal
Officer-Annuities (August 1999-October 2000) of Prudential Insurance Company of
America; Vice President and Corporate Counsel (November 1997-August 1999) of
Prudential Insurance Company of America. The executive officers of the Fund are
elected annually by the Board of Directors at their meeting following the Annual
Meeting of Stockholders. The address of the executive officers is c/o:
Prudential Investments LLC, Gateway Center 3, 100 Mulberry Street, Newark, NJ
07102.
12
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
The firm of KPMG LLP (KPMG) has been selected as the independent
registered public accounting firm for the Fund.
In accordance with Independence Standards Board No. 1, KPMG, the
Fund's independent registered public accounting firm for the fiscal year ended
August 31, 2004, has confirmed to the Audit Committee that they are independent
with respect to the Fund.
On May 25, 2004, the Board of the Fund voted not to re-appoint the
Fund's former independent auditors for the year ending August 31, 2004. The
former independent auditor's report on the financial statements for the past two
fiscal years did not contain an adverse opinion or a disclaimer of opinion, nor
was it qualified or modified as to uncertainty, audit scope, or accounting
principles. During the Fund's two most recent fiscal years ended August 31, 2003
and through May 25, 2004, there have been no disagreements with the former
independent auditors on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which would have
caused the former independent auditors to make a reference to the subject matter
of the disagreement(s) in connection with its reports. On May 25, 2004, the Fund
engaged KPMG as its new independent registered public accounting firm. During
the Fund's two most recent fiscal years ended August 31, 2003 and the subsequent
interim period through the date of their appointment, the Fund did not consult
with KPMG with respect to the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Fund's financial statements, or any other
matters or reportable events as set forth in Items 304(a)(1)(iv) and (v) of
Regulation S-K.
The SEC's auditor independence rules require the Audit Committee of
the Fund to pre-approve (a) all audit and permissible non-audit services
provided by the Fund's independent registered public accounting firm directly to
the Fund and (b) those permissible non-audit services provided by the Fund's
independent registered public accounting firm to the Fund's investment adviser
(not including any subadviser whose role is primarily portfolio management and
subcontracted with or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the Fund (the "Affiliated Service Providers"),
if the services relate directly to the operations and financial reporting of the
Fund.
AUDIT FEES
The aggregate Audit Fees billed by KPMG and the Fund's former
independent auditors for the fiscal years ended August 31, 2004 and August 31,
2003 for professional services rendered by KPMG or the former independent
auditors, as applicable, for the audit of the Fund's annual financial statements
or services that are normally provided by KPMG or the former independent
auditors in connection with statutory and regulatory filings or engagement for
those fiscal years were $22,100 and $30,000, respectively.
AUDIT-RELATED FEES:
Fees designated as Audit-Related comprise assurance and related
services provided by KPMG or the Fund's former independent auditors that are
reasonably related to the performance of the audit or review of the Fund's
financial statements that are not reported under Audit Fees. These services
include accounting consultations, fund merger support services and provision of
agreed upon procedure reports, attestation reports and other internal control
reports.
For the fiscal years ended August 31, 2004 and August 31, 2003, there
were no Audit-Related Fees billed by KPMG or the Fund's former independent
auditors for audit-related services provided by KPMG or the former independent
auditors, as applicable, to the Fund or to the Fund's Affiliated Service
Providers (for which pre-approval by the Audit Committee was required).
13
TAX FEES:
Tax fees include professional services rendered by KPMG or the Fund's
former independent auditors for tax compliance, tax advice and tax planning.
For the fiscal years ended August 31, 2004 and August 31, 2003, there
were no Tax Fees billed by KPMG or the Fund's former independent auditors for
tax services provided by KPMG or the Fund's former independent auditors to the
Fund or to the Fund's Affiliated Service Providers (for which pre-approval by
the Audit Committee was required).
ALL OTHER FEES:
Fees in the Other Fees category relate to products and services
provided by KPMG or the Fund's former independent auditors, other than the
services reported under the captions above.
For the fiscal years ended August 31, 2004 and August 31, 2003, there
were no Other Fees billed by KPMG or the Fund's former independent auditors for
products and services (other than the services reported under the captions
above) provided by KPMG or the Fund's former independent auditors to the Fund or
to the Fund's Affiliated Service Providers (and for which pre-approval by the
Audit Committee was required).
AGGREGATE NON-AUDIT FEES
For the fiscal years ended August 31, 2004 and August 31, 2003, the
aggregate non-audit fees billed by KPMG and the Fund's former independent
auditors for services rendered to the Fund and the Fund's Affiliated Service
Providers amounted to approximately $28,500 and $1,715,979, respectively.
The Audit Committee has considered the provision of non-audit services
that were rendered to the Fund's Affiliated Service Providers that were not
pre-approved and determined that the provision of such services is compatible
with maintaining KPMG's independence.
AUDIT COMMITTEE'S PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee has adopted policies and procedures with regard to
the pre-approval of services provided by the Fund's independent registered
public accounting firm. In accordance with the policies and procedures, the
Audit Committee must pre-approve any independent registered public accounting
firm's engagement to render audit and/or permissible non-audit services, as
required by law. In evaluating a proposed engagement of the firm, the Audit
Committee will assess the effect that the engagement might reasonably be
expected to have on the accountant's independence. On an annual basis, the scope
of audit for the Fund, audit fees and expenses, and audit-related and non-audit
services (and fees proposed in respect thereof) proposed to be performed by the
Fund's independent registered public accounting firm will be presented to the
Audit Committee for review and, as appropriate, approval prior to the initiation
of such services. Certain non-audit services that the independent registered
public accounting firm is legally permitted to render will be subject to
pre-approval by the Committee or by one or more Committee members to whom the
Committee has delegated this authority and who will report to the full Committee
any pre-approval decisions made pursuant to the Fund's policies and procedures.
The Committee shall receive periodic reports on the progress of the audit and
other services which are approved by the Committee or by the committee chair
pursuant to authority delegated in the policies and procedures.
Individual audit-related services and individual tax services that
fall within certain designated categories and are not presented to the Audit
Committee as part of the annual pre-approval process will be subject to
pre-approval by the committee chair (or any other Committee member on whom this
responsibility has been delegated) so long as the estimated fee for those
services does not exceed $50,000.
14
Certain non-audit services provided to PI or any of its affiliates
that also provide ongoing services to the JennisonDryden and Strategic Partners
Mutual Funds will be subject to pre-approval by the Audit Committee. The only
non-audit services provided to these entities that will require pre-approval are
those related directly to the operations and financial reporting of the Fund.
Individual projects that are not presented to the Audit Committee as part of the
annual pre-approval process, will be subject to pre-approval by the Committee
chair (or any other Committee member on whom this responsibility has been
delegated) so long as the estimated fee for those services does not exceed
$50,000. Although the Audit Committee will not pre-approve all services provided
to PI and its affiliates, the Committee will receive an annual report from the
Fund's independent registered public accounting firm showing the aggregate fees
for all services provided to PI and its affiliates.
Representatives of KPMG are not expected to be present at the meeting,
will not have an opportunity to make a statement and are not expected to be
available to respond to questions.
The report of the Audit Committee, dated October 25, 2004, is attached
to this proxy statement as Appendix A.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a)
of the Securities Exchange Act of 1934, as amended (the Exchange Act), requires
the officers and directors of the Fund and persons who own more than ten percent
of the Fund's equity securities to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission (SEC)
and the New York Stock Exchange. Officers, directors and greater than ten
percent stockholders are required by SEC regulations to furnish the Fund with
copies of all Forms 3, 4 and 5 they file.
Based solely on the Fund's review of the copies of such Forms, and
amendments thereto, furnished to it during or with respect to its most recent
fiscal year, and written representations from certain reporting persons that
they were not required to file Form 5 with respect to the most recent fiscal
year, the Fund believes that all of its officers, Directors, greater than ten
percent beneficial owners and other persons subject to Section 16 of the
Exchange Act because of the requirements of Section 30 of the Investment Company
Act (i.e., any advisory board member, investment adviser or affiliated person of
the Fund's investment adviser) have complied with all filing requirements
applicable to them with respect to transactions during the Fund's most recent
fiscal year or prior fiscal years.
REQUIRED VOTE
Directors must be elected by a vote of a plurality of the votes cast
at the meeting in person or by proxy and entitled to vote thereupon.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT YOU VOTE "FOR" EACH
OF THE NOMINEES INDICATED IN PROPOSAL NO. 1.
15
OTHER MATTERS
No business other than as set forth herein is expected to come before
the Meeting, but should any other matter requiring a vote of stockholders arise,
including any question as to an adjournment of the Meeting, the persons named in
the enclosed proxy will vote thereon according to their best judgment in the
interests of the Fund provided the Fund did not have notice of such matter on or
before September 16, 2004.
STOCKHOLDER PROPOSALS
The deadline for submitting stockholder proposals for inclusion in
the Fund's proxy statement and form of proxy for the Fund's Annual Meeting of
Stockholders in 2005, pursuant to Rule 14a-8 under the Securities Exchange Act
of 1934, is July 19, 2005. Any stockholder proposal or director nomination that
is intended to be presented at such Annual Meeting, but not submitted for
inclusion in the Fund's proxy statement and form of proxy in accordance with the
foregoing sentence, must be received by the Fund's Secretary at the address
indicated on the first page of this proxy statement no earlier than August 9,
2005 and no later than September 8, 2005. Any such proposal not received during
that period will be considered untimely and may be excluded from consideration
at the next Annual Meeting in accordance with the Fund's Amended and Restated
Bylaws. The mere submission of a proposal or notice of proposal by a stockholder
does not guarantee that such proposal will be included in the proxy statement or
otherwise considered at such Annual Meeting because certain federal rules and
Sections 1.12 and 1.13 of the Fund's Amended and Restated Bylaws, respectively,
must be complied with before consideration of the proposal is required. If such
proposals are permitted to be brought before any meeting, the persons named as
proxies in the proxies solicited by the Board for the 2005 Annual Meeting of
Stockholders may exercise discretionary voting power with respect to any such
proposal.
FINANCIAL STATEMENTS
The Fund's financial statements for the fiscal year ended August 31,
2004 are incorporated into this proxy statement by reference to the Fund's 2004
annual report to stockholders (File No. 811-05296) filed on or about November
4, 2004.
Deborah A. Docs
SECRETARY
Dated: November 16, 2004
STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING AND WHO
WISH TO HAVE THEIR SHARES VOTED ARE REQUESTED TO DATE AND SIGN THE ENCLOSED
PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED
IN THE UNITED STATES.
16
APPENDIX A
THE HIGH YIELD INCOME FUND, INC.
(THE"FUND")
AUDIT COMMITTEE REPORT
The role of the Audit Committee is to assist the Board of Directors in
its oversight of the Fund's independent auditors, accounting policies and
procedures and other areas relating to the Fund's auditing and control process
and the selection of the Fund's independent auditors. The Committee operates
pursuant to a charter adopted by the Board on July 1, 2004. As set forth in the
charter, management of the Fund is responsible for the preparation, presentation
and integrity of the Fund's financial statements, and for maintaining
appropriate accounting and financial reporting principles and policies and
internal control over financial reporting and other procedures designed to
assure compliance with accounting standards and applicable laws and regulations.
The independent auditors are responsible for planning and carrying out an audit
consistent with applicable legal and professional standards and terms of their
engagement letter.
In performing its oversight function, the Committee has considered and
discussed with management and the independent auditors the Fund's audited
financial statements for its fiscal year ended August 31, 2004. The Committee
has discussed with the independent auditors the matters required to be discussed
by Statement on Auditing Standards No. 61, COMMUNICATION WITH AUDIT COMMITTEES,
as modified or supplemented. The Committee has also received the written
disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1, INDEPENDENCE DISCUSSIONS WITH AUDIT
COMMITTEES, as currently in effect, delineating relationships between the
independent auditors and the Fund, and discussed with the independent auditors
the impact that any such relationships may have on the objectivity and
independence of the independent auditors.
The members of the Audit Committee are not professionally engaged in
the practice of auditing or accounting and are not experts in the field of
auditing, including the issue of auditor independence. Members of the Committee
rely without independent verification on the information provided to them and on
the representations made by management and the independent auditors.
Accordingly, the Audit Committee's oversight does not provide an independent
basis to determine that management has maintained appropriate accounting and
financial reporting principles or appropriate internal controls and procedures
designed to ensure compliance with accounting standards and applicable laws and
regulations.
The Audit Committee met on October 25, 2004 to consider and discuss
the audited financial statements as of and for the fiscal year ended, August 31,
2004 with management and the independent auditors.
Based upon the review and discussions described in this report, and
subject to the limitations on the role and responsibilities of the Committee
referred to above and in the charter, the Committee recommended to the Board
that the audited financial statements be included in the Fund's Annual Report
for its fiscal year ended August 31, 2004.
A-1
SUBMITTED BY THE AUDIT COMMITTEE
OF THE FUND'S BOARD OF DIRECTORS
David E. A. Carson
Robin B. Smith (Ex-Officio)
Stephen Stoneburn
Clay T. Whitehead
Dated: October 25, 2004
A-1B
APPENDIX B
AUDIT COMMITTEE
CHARTER
I. QUALIFICATIONS FOR MEMBERSHIP ON THE AUDIT COMMITTEE
The Audit Committee of each Fund shall consist of Directors of the
Fund, appointed by the Board of Directors of the Fund:
(a) no member shall be an "interested person" of the Fund, as that
term is defined in Section 2(a)(19) of the Investment Company Act
of 1940 (1940 Act); and
(b) no member shall accept directly or indirectly any consulting,
advisory, or other compensatory fee from the Fund (other than in
his or her capacity as a member of the Board of Directors or any
committee thereof).
The Board of Directors shall determine annually whether any member of
the Audit Committee is an "audit committee financial expert," as defined in Item
3 of Form N-CSR.
II. PURPOSES OF THE AUDIT COMMITTEE
The purposes of the Audit Committee are:
(a) to oversee the accounting and financial reporting processes of
the Fund and its internal control over financial reporting;
(b) to oversee the integrity of the Fund's financial statements and
the independent audit thereof;
(c) to oversee, or as appropriate, assist Board oversight of, the
Fund's compliance with legal and regulatory requirements that
relate to the Fund's accounting and financial reporting, internal
control over financial reporting and independent audits;
(d) to approve prior to appointment, the engagement of the Fund's
independent accountants and, in connection therewith and on an
ongoing basis, to review and evaluate the qualifications,
independence and performance of the Fund's independent
accountants; and
(e) to act as a liaison between the Fund's independent accountants
and the full Board.
III. ROLE AND RESPONSIBILITIES OF THE AUDIT COMMITTEE
The function of the Audit Committee is oversight; it is management's
responsibility to maintain appropriate systems for accounting and internal
control over financial reporting, and the independent accountants'
responsibility to plan and carry out a proper audit. Specifically, Fund's
management is responsible for: (1) the preparation, presentation and integrity
of the Fund's financial statements; (2) the maintenance of appropriate
accounting and financial reporting principles and policies; and (3) the
maintenance of internal control over financial reporting and other procedures
designed to assure compliance with accounting standards and related laws and
regulations. The independent accountants are responsible for planning and
carrying out an audit consistent with applicable legal and professional
standards and terms of their engagement letter. The independent accountants are
accountable to the Board of Directors and the Audit Committee, as
representatives of the shareholders. The Audit Committee and the Board of
Directors have the ultimate authority and responsibility to retain and terminate
the Fund's independent accountants (subject, if applicable, to shareholder
ratification). Nothing in this Charter shall be construed to reduce the
responsibilities or liabilities of the Fund's service providers, including the
independent accountants.
B-1
The review of a Fund's financial statements by the Audit Committee is
not an audit, nor does the Committee's review substitute for the
responsibilities of the Fund's management for preparing, or the independent
accountants for auditing, the financial statements. In fulfilling their
responsibilities hereunder, it is recognized that members of the Audit Committee
are not full-time employees of the Fund or management and, in serving on this
Committee, are not, and do not hold themselves out to be, acting as accountants
or auditors. As such, it is not the responsibility of the Committee or its
members to conduct audits, to determine that the financial statements are
complete and accurate and are in accordance with generally accepted accounting
principles, to conduct "field work" or other types of auditing or accounting
reviews or procedures.
In discharging their duties, the members of the Audit Committee are
entitled to rely on information, opinions, reports, or statements, including
financial statements and other financial data, if prepared or presented by: (1)
one or more officers of the Fund whom the Director reasonably believes to be
reliable and competent in the matters presented; (2) legal counsel, public
accountants, or other persons as to matters the Director reasonably believes are
within the person's professional or expert competence; (3) a Board committee of
which the Director is not a member; and (3) representations made by management
as to any information technology, internal audit and other non-audit services
provided by the independent accountants to the Fund. "Management" means the
Fund's Manager, acting through its officers and employees, not the Fund's
officers as such.
IV. DUTIES AND POWERS OF THE AUDIT COMMITTEE
To carry out its purposes, the Audit Committee shall have the
following duties and powers:
(a) to select or retain independent accountants to annually audit and
provide their opinion on the Fund's financial statements, and
recommend to those Board members who are not "interested persons"
(as that term is defined in Section 2(a)(19) of the 1940 Act) to
ratify the selection or retention;
(b) to terminate, as appropriate, the independent accountants;
(c) to monitor the independence and capabilities of the independent
accountants;
(d) to review and approve the independent accountants' compensation
and the proposed terms of their engagement, including the fees
proposed to be charged to the Fund by the independent accountants
for each audit and non-audit service;
(e) to approve prior to appointment, the engagement of the
independent accountant or any other independent accounting firms
to provide other audit services to the Fund or to provide
permissible non-audit services to the Fund, its investment
adviser (which throughout this Charter includes the Fund's
subadviser(s), if any) or any entity controlling, controlled by,
or under common control with the investment adviser (adviser
affiliate) that provides ongoing services to the Fund, if the
engagement relates directly to the operations or financial
reporting of the Fund and as otherwise required by law;
(f) to establish, to the extent deemed appropriate by the Audit
Committee, policies and procedures for pre-approval of the
engagement of the Fund's independent accountants to provide any
of the services described in the paragraph immediately above;
(g) to consider the controls applied by the independent accountants
and any measures taken by management in an effort to assure that
all items requiring pre-approval by the Audit Committee are
identified and referred to the Committee in a timely fashion;
(h) to consider whether the non-audit services provided by the Fund's
independent accountants to the Fund, the Fund's investment
adviser or any adviser affiliate that provides ongoing services
to the Fund, are compatible with maintaining the independent
accountants' independence;
B-2
(i) to recommend to the Board of Directors the appointment of the
Fund's principal accounting officer and principal financial
officer;
(j) to review the arrangements for and scope of the annual audit and
any special audits;
(k) to oversee the work of the Fund's independent accountants by
reviewing, with the independent accountants, (i) the arrangements
for, the scope of, and the results of, the audit of annual
financial statements; and (ii) the Fund's accounting and
financial reporting policies and practices, its internal controls
and, as appropriate, the internal controls of key service
providers;
(l) to review and discuss the Fund's annual audited financial
statements, and, to the extent required by applicable law or
regulations, the Fund's semi-annual financial statements, with
Fund management and the Fund's independent accountants and to
review the independent accountants' opinion on the Fund's
financial statements;
(m) to review, as appropriate and in consultation with management of
the Fund and/or the independent accountants, reports or other
communications submitted by the independent accountants, whether
voluntary or mandated by law, including those relating to Fund
accounting and financial reporting policies, procedures and
internal controls over financial reporting (including the Fund's
critical accounting policies and practices), any matters of
concern relating to the Fund's financial statements, including
any adjustments to such statements recommended by the independent
accountants and, to the extent the Audit Committee deems
necessary or appropriate, any matters to promote improvements in
the quality of the Fund's accounting and financial reporting, as
well as any management responses to comments relating to those
policies, procedures, controls and other issues;
(n) to review with the Fund's principal executive officer and/or
principal financial officer in connection with required
certifications on Form N-CSR any significant deficiencies in the
design or operation of internal controls over financial reporting
or material weaknesses therein and any reported evidence of fraud
involving management or other employees or employees of the
investment adviser who have a significant role in the Fund's
internal control over financial reporting;
(o) to consider, in consultation with the independent accountants and
management, the adequacy of the Fund's accounting and financial
reporting policies and practices and their internal controls and
procedures for financial reporting;
(p) to establish procedures for (i) the receipt, retention and
treatment of complaints received by the Fund relating to
accounting, internal accounting controls, or auditing matters,
and (ii) the confidential, anonymous submission by employees of
the Fund and by employees of the Fund's investment adviser,
administrator, principal underwriter, and any other provider of
accounting related services for the Fund of concerns about
accounting or auditing matters;
(q) to address reports from attorneys (in accordance with any
attorney conduct procedures adopted by the Fund or its investment
adviser from time to time) or independent accountants of possible
violations of federal or state law or fiduciary duty;
(r) to investigate, or initiate an investigation, when the Committee
deems it necessary, of reports of potential improprieties or
improprieties in connection with the Fund's accounting or
financial reporting Fund operations;
(s) to meet periodically with management of the Fund (outside the
presence of the independent accountants) and with the independent
accountants of the Fund (outside the presence of Fund management)
to discuss any issues relating to the Fund's audited financial
statements or otherwise arising from the Committee's functions.
B-3
(t) to resolve disagreements between management and the independent
accountants regarding financial reporting or in Fund operations;
(u) at least annually, to obtain and review a report by the Fund's
independent accountants describing: (i) such independent
accountants' internal quality-control procedures; (ii) any
material issues raised by the most recent internal
quality-control review, or peer review, of such independent
accountants, or by any inquiry or investigation by governmental
or professional authorities, within the preceding five years,
respecting one or more independent audits carried out by such
independent accountants, and any steps taken to deal with any
such issues; and (iii) to assess the independence of the Fund's
independent accountants, all relationships between the Fund's
independent accountants and the Fund; the Fund's investment
adviser, and affiliates of the adviser;
(v) to report the Committee's activities and conclusions on a regular
basis to the Board of Directors and to make such recommendations
as the Committee deems necessary or appropriate;
(w) to annually review the adequacy of, and, as appropriate,
implement changes to, its Charter; and
(x) to perform such other functions and to have such powers as may be
necessary or appropriate in the efficient and lawful discharge of
the powers provided in this Charter.
To the extent permitted by a Fund's Articles of
Incorporation/Declaration of Trust and bylaws, the Audit Committee may delegate
any portion of its authority, including the authority to grant pre-approvals of
audit and permitted non-audit services, to a subcommittee of one or more members
in accordance with pre-approval policies and procedures developed by the
Committee. Any decisions of the subcommittee to grant pre-approvals shall be
presented to the full Audit Committee at its next regularly scheduled meeting.
Pre-approval of the audit required by the Securities and Exchange Act of 1934
may not be delegated.
The Audit Committee shall have the resources and authority appropriate
to discharge its responsibilities, including appropriate funding, as determined
by the Committee, for payment of compensation to the Fund's independent
accountants or any other accounting firm engaged for the purpose of preparing or
issuing an audit report or performing other audit review or attest services for
the Fund.
V. MEETINGS OF THE AUDIT COMMITTEE
The Audit Committee shall regularly meet, in separate executive
sessions, with representatives of Fund management and the Fund's independent
accountants. The Committee may also request to meet with internal legal counsel
and compliance personnel of the Fund's investment adviser and with entities that
provide significant accounting or administrative services to the Fund to discuss
matters relating to the Fund's accounting and compliance as well as other
Fund-related matters.
B-4
APPENDIX C
NOMINATING AND GOVERNANCE COMMITTEE
CHARTER
The responsibilities of the Nominating and Governance Committee of
each Fund include:
o Recommending to the Board of Directors of the Fund the slate of
nominees for Independent Directors to be elected (including any
Directors to be elected to fill vacancies). The Committee will
evaluate candidates' qualifications for Board membership and
their independence from management and principal service
providers. Persons selected must be independent in terms of both
the letter and the spirit of the Investment Company Act of 1940
and the Rules, Regulations and Forms under the Act. The Committee
also will consider the effect of any relationships beyond those
delineated in the 1940 Act that might impair independence, such
as business, financial or family relationships with Fund managers
or service providers.
o Interviewing (which will be done by the Committee Chair and at
least one other member of the Committee) any candidates
(Independent and Interested) whom the Committee anticipates
recommending to the Board of Directors for service on the Board.
The Committee will not consider, in the absence of extraordinary
circumstances, any candidate for an Independent Director who has
served as an officer or director of the Fund's manager,
investment adviser, principal underwriter or any affiliate
thereof during the preceding five years.
o Reviewing the independence of Independent Directors then serving
on the Fund Board. An otherwise Independent Director who served
as an officer or director of the Fund's manager, investment
adviser, principal underwriter or any affiliate thereof will not
be deemed independent, unless five years have elapsed since he or
she severed all such affiliations.
o Recommending, as appropriate, to the Board the Independent
Directors to be selected for membership on the various Board
Committees.
o Reviewing the composition of the Board of Directors to determine
whether it may be appropriate to add individuals with different
backgrounds or skills from those already on the Board.
o Reporting annually to the Board on whether the Audit Committee
has at least one Audit Committee Financial Expert.
o Assisting the Board Chair with the development of Board meeting
agendas.
o Reviewing each Director's beneficial investment in Fund shares.
The Committee will encourage each Director to maintain, either
directly or beneficially, investments in the Funds that are equal
to the aggregate fees for one year that he or she receives for
Board-related service to the Funds. Under ordinary circumstances,
new Independent Directors will have two years to comply with this
policy.
o Being available to assist the Board of Directors in evaluating
the quality of Director participation on the Board, which may be
measured, in part, by factors such as attendance and
contributions at Board meetings and by a review of responses to
the annual Board Assessment Questionnaire. The Committee will
review, with the Board Chair, the summary of responses to the
Board Assessment Questionnaire and report those responses to the
full Board. A Director automatically will be ineligible for
re-nomination to the Board, and the Board will request his or her
resignation, if for health or any other reason the individual
fails to participate, over any eighteen-month period, in (1)
three consecutive regularly scheduled in-person meetings of the
Board or (2) four in-person meetings of the Board.
C-1
o Recommending to the Board a successor to the Board Chair at the
expiration of a term or when a vacancy occurs.
o Developing an annual education calendar that details the topics
to be addressed in the Board's quarterly education sessions. The
educational calendar for a year will be presented to the full
Board at its first quarterly meeting of that year. The Committee
Chair, in consultation with the Board Chair, may make adjustments
to the educational calendar during the year as appropriate due to
industry or regulatory developments or other factors.
o Monitoring the attendance by each Independent Director at no less
than one educational seminar, conference or similar meeting per
year, in accordance with Board expectations. Any Director who
wishes to attend an educational seminar, conference or similar
meeting must obtain the consent of the Board Chair before
registering for or incurring expenses in connection with that
educational seminar, conference or meeting.
o Developing and conducting orientation sessions for any new
Independent Director before or shortly after the new Director
joins the Board.
o In collaboration with outside counsel and as required by law or
deemed advisable by the Committee, developing policies and
procedures addressing matters which should come before the
Committee in the proper exercise of its duties.
o Reviewing, at least annually, the Board's adherence to industry
"best practices."
o Reviewing Director compliance with the policy encouraging
Directors to provide, when feasible, at least six months' notice
before resigning from the Board.
o Reviewing Director compliance with the requirement that a
Director must retire from Board service by December 31 of the
year in which he or she reaches the age of 75.
o Reviewing and making recommendations to the Board of Directors
concerning Director compensation and expenses, including:
- annual Director fees;
- supplemental compensation for Committee service;
- supplemental compensation for serving as a Committee Chair;
- Board or Committee meeting attendance fees; and
- expense reimbursement.
o Annually reviewing and, as appropriate, recommending changes to
its Charter.
C-2