Western Asset Municipal High Income Fund Inc.
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT ("Agreement") is made this 1st day
of August, 2006, by and between Xxxx Xxxxx Partners Fund Advisor,
LLC, a Delaware limited liability company (the "Manager"),
and Western Asset Management Company, a California corporation
(the "Subadviser").
WHEREAS, the Manager has been retained by Municipal High Income
Fund Inc. (the "Fund"), a registered management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act")
to provide investment advisory, management, and administrative services
to the Fund; and
WHEREAS, the Manager wishes to engage the Subadviser to provide certain
investment advisory services to the Fund, and the Subadviser is willing
to furnish such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
0.Xx accordance with and subject to the Management Agreement between
the Fund and the Manager (the "Management Agreement"), the Manager
hereby appoints the Subadviser to act as Subadviser with respect to
the Fund for the period and on the terms set forth in this Agreement.
The Subadviser accepts such appointment and agrees to render the services
herein set forth, for the compensation herein provided.
2.The Manager shall cause the Subadviser to be kept fully informed
at all times with regard to the securities owned by the Fund, its funds
available, or to become available, for investment, and generally as to
the condition of the Fund's affairs. Manager shall furnish the Subadviser
with such other documents and information with regard to the Fund's affairs
as the Subadviser may from time to time reasonably request.
3.(a) Subject to the supervision of the Fund's Board of Directors
(the "Board") and the Manager, Subadviser shall regularly provide the
Fund with respect to such portion of the Fund's assets as shall be
allocated to the Subadviser by the Manager from time to time
(the "Allocated Assets") with investment research, advice, management
and supervision and shall furnish a continuous investment program for
the Allocated Assets consistent with the Fund's investment objectives,
policies and restrictions, as stated in the Fund's Prospectus and Statement
of Additional Information. The Subadviser shall, with respect to the
Allocated Assets, determine from time to time what securities and other
investments will be purchased (including, as permitted in accordance
with this paragraph,swap agreements,options and futures), retained,
sold or exchanged by the Fund and what portion of the Allocated Assets
will be held in the various securities and other investments in which
the Fund invests, and shall implement those decisions
(including the execution of investment documentation), all subject to
the provisions of the Fund's Articles of Incorporation and
By-Laws (collectively, the "Governing Documents"), the 1940 Act, and the
applicable rules and regulations promulgated thereunder by the Securities
and Exchange Commission (the "SEC") and interpretive guidance issued
thereunder by the SEC staff and any other applicable federal and state
law, as well as the investment objectives, policies and restrictions of
the Fund referred to above, and any other specific policies adopted by
the Board and disclosed to the Subadviser. The Subadviser is authorized
as the agent of the Fund to give instructions with respect to the
Allocated Assets to the custodian of the Fund as to deliveries of
securities and other investments and payments of cash for the account
of the Fund. Subject to applicable provisions of the 1940 Act,
the investment program to be provided hereunder may entail the
investment of all or substantially all of the assets of the Fund
in one or more investment companies. The Subadviser will place
orders pursuant to its investment determinations for the Fund
either directly with the issuer or with any broker or dealer,
foreign currency dealer, futures commission merchant or others
selected by it. In connection with the selection of such brokers
or dealers and the placing of such orders, subject to applicable
law, brokers or dealers may be selected who also provide brokerage
and research services (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
to the Fund and/or the other accounts over which the Subadviser or
its affiliates exercise investment discretion. The Subadviser is
authorized to pay a broker or dealer who provides such brokerage
and research services a commission for executing a portfolio
transaction for the Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting
that transaction if the Subadviser determines in good faith that such
amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer.
This determination may be viewed in terms of either that particular
transaction or the overall responsibilities which the Subadviser and
its affiliates have with respect to accounts over which they exercise
investment discretion. The Board may adopt policies and procedures that
modify and restrict the Subadviser's authority regarding the execution
of the Fund's portfolio transactions provided herein. The Subadviser
shall exercise voting rights, rights to consent to corporate action
and any other rights pertaining to the Allocated Assets subject to
such direction as the Board may provide, and shall perform such other
functions of investment management and supervision as may be directed
by the Board.
(b)The Fund hereby authorizes any entity or person associated with
the Subadviser which is a member of a national securities exchange to
effect any transaction on the exchange for the account of the Fund which
is permitted by Section 11(a) of the Exchange Act and Rule 11a2-2(T)
thereunder, and the Fund hereby consents to the retention of compensation
for such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv).
Notwithstanding the foregoing, the Subadviser agrees that it will not
deal with itself, or with members of the Board or any principal
underwriter of the Fund, as principals or agents in making purchases
or sales of securities or other property for the account of the Fund,
nor will it purchase any securities from an underwriting or selling group
in which the Subadviser or its affiliates is participating, or arrange for
purchases and sales of securities between the Fund and another account
advised by the Subadviser or its affiliates, except in each case as
permitted by the 1940 Act and in accordance with such policies and
procedures as may be adopted by the Fund from time to time, and will
comply with all other provisions of the Governing Documents and the
Fund's Prospectus and Statement of Additional Information relative
to the Subadviser and its directors and officers.
4.The Subadviser may delegate to any other one or more companies that
the Subadviser controls, is controlled by, or is under common control
with, or to specified employees of any such companies, certain of the
Subadviser's duties under this Agreement, provided in each case the
Subadviser will supervise the activities of each such entity or
employees thereof, that such delegation will not relieve the
Subadviser of any of its duties or obligations under this Agreement
and provided further that any such arrangements are entered into in
accordance with all applicable requirements of the 1940 Act.
5.The Subadviser agrees that it will keep records relating to its services
hereunder in accordance with all applicable laws, and in compliance with
the requirements of Rule 31a-3 under the 1940 Act, the Subadviser hereby
agrees that any records that it maintains for the Fund are the property
of the Fund, and further agrees to surrender promptly to the Fund any of
such records upon the Fund's request. The Subadviser further agrees to
arrange for the preservation of the records required to be maintained
by Rule 31a-1 under the 1940 Act for the periods prescribed by Rule
31a-2 under the 1940 Act.
6.(a)The Subadviser, at its expense, shall supply the Board, the
officersof the Fund, and the Manager with all information and reports
reasonablyrequired by them and reasonably available to the Subadviser
relatingto the services provided by the Subadviser hereunder.
(b)The Subadviser shall bear all expenses, and shall furnish all
necessary services, facilities and personnel, in connection with its
responsibilities under this Agreement. Other than as herein specifically
indicated, the Subadviser shall not be responsible for the Fund's
expenses, including, without limitation, advisory fees; distribution
fees; interest; taxes; governmental fees; voluntary assessments and
other expenses incurred in connection with membership in investment
company organizations; organization costs of the Fund; the cost
(including brokerage commissions, transaction fees or charges,
if any) in connection with the purchase or sale of the Fund's securities
and other investments and any losses in connection therewith; fees
and expenses of custodians, transfer agents, registrars, independent
pricing vendors or other agents; legal expenses; loan commitment fees;
expenses relating to share certificates; expenses relating to the
issuing and redemption or repurchase of the Fund's shares and servicing
shareholder accounts; expenses of registering and qualifying the Fund's
shares for sale under applicable federal and state law; expenses of
preparing, setting in print, printing and distributing prospectuses and
statements of additional information and any supplements thereto,
reports, proxy statements, notices and dividends to the Fund's
shareholders; costs of stationery; website costs; costs of meetings of
the Board or any committee thereof, meetings of shareholders and other
meetings of the Fund; Board fees; audit fees; travel expenses of
officers, members of the Board and employees of the Fund, if any; and
the Fund's pro rata portion of premiums on any fidelity bond and other
insurance covering the Fund and its officers, Board members and
employees; litigation expenses and any non-recurring or extraordinary
expenses as may arise, including, without limitation, those relating to
actions, suits or proceedings to which the Fund is a party and the
legal obligation which the Fund may have to indemnify the Fund's
Board members and officers with respect thereto.
0.Xx member of the Board, officer or employee of the Fund shall
receive from the Fund any salary or other compensation as such member
of the Board, officer or employee while he is at the same time a
director, officer, or employee of the Subadviser or any affiliated
company of the Subadviser, except as the Board may decide. This
paragraph shall not apply to Board members, executive committee
members, consultants and other persons who are not regular members
of the Subadviser's or any affiliated company's staff.
0.Xx compensation for the services performed by the Subadviser,
including the services of any consultants retained by the Subadviser,
the Manager shall pay the Subadviser out of the management fee it
receives with respect to the Fund, and only to the extent thereof,
as promptly as possible after the last day of each month, a fee,
computed daily at an annual rate set forth on Schedule A annexed
hereto. The first payment of the fee shall be made as promptly as
possible at the end of the month succeeding the effective date of
this Agreement, and shall constitute a full payment of the fee due
the Subadviser for all services prior to that date. If this
Agreement is terminated as of any date not the last day of a month,
such fee shall be paid as promptly as possible after such date of
termination, shall be based on the average daily net assets of the
Fund or, if less, the portion thereof comprising the Allocated
Assets in that period from the beginning of such month to such date
of termination, and shall be that proportion of such average daily
net assets as the number of business days in such period bears to
the number of business days in such month. The average daily net
assets of the Fund or the portion thereof comprising the Allocated
Assets shall in all cases be based only on business days and be
computed as of the time of the regular close of business of the
New York Stock Exchange, or such other time as may be determined
by the Board.
9.The Subadviser assumes no responsibility under this Agreement
other than to render the services called for hereunder, in good
faith, and shall not be liable for any error of judgment or mistake
of law, or for any loss arising out of any investment or for any
act or omission in the execution of securities transactions for the
Fund, provided that nothing in this Agreement shall protect the
Subadviser against any liability to the Manager or the Fund to
which the Subadviser would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the
performance of its duties or by reason of its reckless disregard
of its obligations and duties hereunder. As used in this Section 9,
the term "Subadviser" shall include any affiliates of the Subadviser
performing services for the Fund contemplated hereby and the
partners,shareholders, directors, officers and employees of the
Subadviserand such affiliates.
10.Nothing in this Agreement shall limit or restrict the right of
any director, officer, or employee of the Subadviser who may also
be a Board member, officer, or employee of the Fund, to engage in
any other business or to devote his time and attention in part to
the management or other aspects of any other business, whether of
a similar nature or a dissimilar nature, nor to limit or restrict
the right of the Subadviser to engage in any other business or to
render services of any kind, including investment advisory and
management services, to any other fund, firm, individual or
association. If the purchase or sale of securities consistent with
the investment policies of the Fund or one or more other accounts
of the Subadviser is considered at or about the same time,
transactions in such securities will be allocated among the
accounts in a manner deemed equitable by the Subadviser. Such
transactions may be combined, in accordance with applicable laws
and regulations, and consistent with the Subadviser's policies and
procedures as presented to the Board from time to time.
11.For the purposes of this Agreement, the Fund's "net assets"
shall be determined as provided in the Fund's Prospectus and
Statement of Additional Information and the terms "assignment,"
"interested person," and "majority of the outstanding voting
securities" shall have the meanings given to them by Section 2(a)
of the 1940 Act, subject to such exemptions as may be granted by
the SEC by any rule, regulation or order.
12.This Agreement will become effective with respect to the Fund
on the date set forth opposite the Fund's name on Schedule A
annexed hereto, provided that it shall have been approved by the
Fund's Board and, if so required by the 1940 Act, by the
shareholders of the Fund in accordance with the requirements of
the 1940 Act and, unless sooner terminated as provided herein,
will continue in effect through November 30, 2007. Thereafter,
if not terminated, this Agreement shall continue in effect with
respect to the Fund, so long as such continuance is specifically
approved at least annually (i) by the Board or (ii) by a vote of
a majority of the outstanding voting securities of the Fund,
provided that in either event the continuance is also approved by
a majority of the Board members who are not interested persons of
any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval.
13.This Agreement is terminable with respect to the Fund without
penalty by the Board or by vote of a majority of the outstanding
voting securities of the Fund, in each case on not more than 60
days' nor less than 30 days' written notice to the Subadviser,
or by the Subadviser upon not less than 90 days' written notice
to the Fund and the Manager, and will be terminated upon the
mutual written consent of the Manager and the Subadviser.This
Agreement shall terminate automatically in the event of its
assignment by the Subadviser and shall not be assignable by the
Manager without the consent of the Subadviser.
14.The Subadviser agrees that for any claim by it against the
Fund in connection with this Agreement or the services rendered
under this Agreement, it shall look only to assets of the Fund
for satisfaction and that it shall have no claim against the
assets of any other portfolios of the Fund.
00.Xx provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, and no
material amendment of the Agreement shall be effective until
approved, if so required by the 1940 Act, by vote of the holders
of a majority of the Fund's outstanding voting securities.
16.This Agreement, and any supplemental terms contained on
Annex I hereto, if applicable, embodies the entire agreement
and understanding between the parties hereto, and supersedes
all prior agreements and understandings relating to the subject
matter hereof. Should any part of this Agreement 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 on and shall inure to the benefit of
the parties hereto and their respective successors.
17.This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State
of New York.
[signature page to follow]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their officers thereunto duly authorized.
XXXX XXXXX PARTNERS FUND ADVISOR, LLC
By: _______________________________
Name:
Title:
WESTERN ASSET MANAGEMENT COMPANY
By: _______________________________
Name:
Title:
The foregoing is acknowledged:
The undersigned officer of the Fund has executed this Agreement
not individually but in his/her capacity as an officer of the
Fund. The Fund does not hereby undertake, on behalf of the Fund
or otherwise, any obligation to the Subadviser.
MUNICIPAL HIGH INCOME FUND INC.
By: _______________________________
Name:
Title:
ANNEX I
Not applicable.
SCHEDULE A
Municipal High Income Fund Inc.
Date:
August 1, 2006
Fee:
The sub-advisory fee will be 70% of the management fee paid to
Xxxx Xxxxx Partners Fund Advisor, LLC, net of expense waivers
and reimbursements.
