INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of September 1,
2017, by and between Highland Capital
Management Fund Advisors, L.P., a Delaware
limited partnership (the "Adviser"), and Highland
Floating Rate Opportunities Fund II, a
Massachusetts business trust (the "Trust"), on
behalf of its series, Highland Floating Rate
Opportunities Fund II (the "Fund").
WHEREAS, the Trust is engaged in
business as an open-end management investment
company and is registered as such under the
Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Adviser is engaged
principally in the business of rendering investment
management services and is registered as an
investment adviser under the Investment Advisers
Act of 1940, as amended;
NOW, THEREFORE, WITNESSETH: That
it is hereby agreed between the parties hereto as
follows:
SECTION 1. Appointment of Adviser.
The Trust hereby appoints the Adviser to act
as manager and investment adviser to the Fund for
the period and on the terms herein set forth. The
Adviser accepts such appointment and agrees to
render the services herein set forth, for the
compensation herein provided.
SECTION 2. Duties of Adviser.
The Adviser, at its own expense, shall
furnish the following services and facilities to the
Fund:
(a) Investment Program. The
Adviser shall (i) furnish continuously an
investment program for the Fund,
(ii) determine (subject to the overall
supervision and review of the Trust's Board
of Trustees) the investments to be
purchased, held, sold or exchanged by the
Fund and the portion, if any, of the assets of
the Fund to be held uninvested, (iii) make
changes in the investments of the Fund and
(iv) vote, exercise consents and exercise all
other rights pertaining to such investments.
The Adviser also shall manage, supervise
and conduct the other affairs and business of
the Fund and matters incidental thereto
pursuant to a separate administration
agreement with the Trust, subject always to
the control of the Trust's Board of Trustees,
and to the provisions of the organizational
documents of the Trust, the Registration
Statement of the Trust with respect to the
Fund and its shares of beneficial interest
("Shares"), including the Fund's Prospectus
and Statement of Additional Information,
and the 1940 Act, in each case as from time
to time amended and in effect. Subject to the
foregoing, the Adviser shall have the
authority to engage, terminate and replace
one or more sub-advisers in connection with
the portfolio management of the Fund,
which sub-advisers may be affiliates of the
Adviser; provided, however, that the
Adviser shall remain responsible to the Trust
with respect to its duties and obligations on
behalf of the Fund set forth in this
Agreement. The Adviser agrees to furnish
advice and recommendations to the Fund
and the Board with respect to the selection
and continued employment of any sub-
adviser(s) to provide investment advisory
services for the portion(s) of the Fund's
portfolio specified by the Adviser and on
terms and conditions, including but not
limited to the compensation payable to any
such sub-adviser(s), approved in the manner
provided by applicable law.
(b) Portfolio Transactions. The
Adviser shall place all orders for the
purchase and sale of portfolio securities for
the account of the Fund with brokers or
dealers selected by the Adviser, although the
Fund will pay the actual brokerage
commissions on portfolio transactions in
accordance with Section 3(d).
In placing portfolio transactions for the
Fund, it is recognized that the Adviser will give
primary consideration to securing the most
favorable price and efficient execution. Consistent
with this policy, the Adviser may, to the extent
permitted by Section 28(e) of the Securities
Exchange Act of 1934, consider the financial
responsibility, research and investment information
and other services provided by brokers or dealers
who may effect or be a party to any such transaction
or other transactions to which other clients of the
Adviser may be a party. It is understood that neither
the Fund nor the Adviser has adopted a formula for
allocation of the Fund's investment transaction
business. It is also understood that it is desirable for
the Fund that the Adviser have access to
supplemental investment and market research and
security and economic analysis provided by brokers
who may execute brokerage transactions at a higher
cost to the Fund than would otherwise result when
allocating brokerage transactions to other brokers
on the basis of seeking the most favorable price and
efficient execution. Therefore, the Adviser is
authorized to place orders for the purchase and sale
of securities for the Fund with such brokers, subject
to review by the Trust's Board of Trustees from
time to time with respect to the extent and
continuation of this practice. It is understood that
the services provided by such brokers may be useful
or beneficial to the Adviser in connection with its
services to other clients.
On occasions when the Adviser deems the
purchase or sale of a security to be in the best
interest of the Fund as well as other clients, the
Adviser, to the extent permitted by applicable laws
and regulations, may, but shall be under no
obligation to, aggregate the securities to be so sold
or purchased in order to obtain the most favorable
price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities
so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the
Adviser in the manner it considers to be the most
equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.
SECTION 3. Allocation of Expenses.
Except for the services and facilities to be
provided by the Adviser pursuant to a separate
administration agreement with the Trust, the Fund
assumes and shall pay all expenses for all other
Fund operations and activities, and shall reimburse
the Adviser for any such expenses incurred by the
Adviser. Unless the Prospectus or Statement of
Additional Information of the Fund provides
otherwise, the expenses to be borne by the Fund
shall include, without limitation:
(a) all expenses of organizing the
Fund;
(b) the charges and expenses of
any registrar, stock transfer or dividend
disbursing agent, shareholder servicing
agent, custodian or depository appointed by
the Fund for the safekeeping of its cash,
portfolio securities and other property,
including the costs of servicing shareholder
investment accounts, and bookkeeping,
accounting and pricing services provided to
the Fund (other than those utilized by the
Adviser in providing the services described
in Section 2);
(c) the charges and expenses of
bookkeeping, accounting and auditors;
(d) brokerage commissions and
other costs incurred in connection with
transactions in the portfolio securities of the
Fund, including any portion of such
commissions attributable to brokerage and
research services as defined in Section 28(e)
of the Securities Exchange Act of 1934;
(e) taxes, including issuance and
transfer taxes, and trust registration, filing or
other fees payable by the Fund to federal,
state or other governmental agencies;
(f) expenses, including the cost
of printing certificates, relating to the
issuance of Shares of the Fund;
(g) expenses involved in
registering and maintaining registrations of
the Fund and of its Shares with the
Securities and Exchange Commission
("SEC") and various states and other
jurisdictions, including reimbursement of
actual expenses incurred by the Adviser or
others in performing such functions for the
Fund, and including compensation of
persons who are employees of the Adviser,
in proportion to the relative time spent on
such matters;
(h) expenses of shareholders'
and trustees' meetings, including meetings
of committees, and of preparing, printing
and mailing proxy statements, quarterly
reports, if any, semi-annual reports, annual
reports and other communications to
existing shareholders;
(i) expenses of preparing and
printing prospectuses and
marketing materials;
(j) compensation and expenses
of trustees who are not affiliated with the
Adviser;
(k) charges and expenses of legal
counsel in connection with matters relating
to the Fund, including, without limitation,
legal services rendered in connection with
the Fund's trust and financial structure and
relations with its shareholders, issuance of
Shares of the Fund and registration and
qualification of Shares under federal, state
and other laws;
(l) the cost and expense of
maintaining the books and records of the
Fund, including general ledger accounting;
(m) insurance premiums on
fidelity, errors and omissions and other
coverages, including the expense of
obtaining and maintaining a fidelity bond as
required by Section 17(g) of the 1940 Act
which may also cover the Adviser;
(n) expenses incurred in
obtaining and maintaining any surety bond
or similar coverage with respect to securities
of the Fund;
(o) interest payable on Fund
borrowings;
(p) such other non-recurring
expenses of the Fund as may arise, including
expenses of actions, suits or proceedings to
which the Trust on behalf of the Fund is a
party and expenses resulting from the legal
obligation that the Trust on behalf of the
Fund may have to provide indemnity with
respect thereto;
(q) expenses and fees reasonably
incidental to any of the foregoing
specifically identified expenses; and
(r) all other expenses permitted
by the Prospectus and Statement of
Additional Information of the Fund as being
paid by the Fund.
SECTION 4. Advisory Fee.
In return for the services and facilities to be
provided to the Fund by the Adviser as provided in
Section 2 hereof, the Fund will pay the Adviser a
monthly fee, computed and accrued daily, based on
an annual rate set forth in Exhibit A hereto of the
Fund's "Average Daily Managed Assets," so long
as the Adviser has not waived all or a portion of
such compensation. "Average Daily Managed
Assets" of the Fund shall mean the average daily
value of the total assets of the Fund, less all accrued
liabilities of the Fund (other than the aggregate
amount of any outstanding borrowings constituting
financial leverage). The Adviser may waive a
portion of its fees. If this Agreement becomes
effective subsequent to the first day of a month or
shall terminate before the last day of a month,
compensation for such month shall be computed in
a manner consistent with the calculation of the fees
payable on a monthly basis. Subject to the
provisions of Section 5 below, the accrued fees will
be payable monthly as promptly as possible after
the end of each month during which this Agreement
is in effect.
SECTION 5. Reimbursements.
The parties agree that they may negotiate
from time to time for the Adviser to reimburse
certain costs and expenses of the Fund. If such an
agreement is in effect, the determination of whether
reimbursement for such costs and expenses is due
the Fund from the Adviser will be made on an
accrual basis once monthly, and if it is so
determined that such reimbursement is due, the
accrued amount of such reimbursement that is due
shall serve as an offset to the investment advisory
fee payable monthly by the Fund to the Adviser
pursuant to Section 4 hereof, and the amount to be
paid by the Adviser to the Fund as soon as is
practicable at the end of a fiscal year of the Fund
shall be equal to the difference between the
aggregate reimbursement due the Fund from the
Adviser for that fiscal year and the aggregate offsets
made by the Fund against the aggregate investment
advisory fees payable to the Adviser pursuant to
Section 4 hereof for that fiscal year by virtue of
such aggregate reimbursement. The foregoing
limitation on reimbursement of costs and expenses
shall exclude distribution and service fees,
brokerage commissions, short sale dividend
expense, taxes, deferred organization expenses and
extraordinary expenses (as determined by the Board
of the Trustees of the Fund in the exercise of its
business judgment).
SECTION 6. Indemnification.
(a) The Trust hereby agrees to
indemnify the Adviser and each of the Adviser's
partners, officers, employees, and agents (including
any individual who serves at the Adviser's request
as director, officer, partner, trustee or the like of
another corporation) and controlling persons (each
such person being an "Indemnitee") against any
liabilities and expenses, including amounts paid in
satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees (all as provided in
accordance with applicable state law) reasonably
incurred by such Indemnitee in connection with the
defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any
court or administrative or investigative body in
which he may be or may have been involved as a
party or otherwise or with which he may be or may
have been threatened, while acting in any capacity
set forth above in this paragraph or thereafter by
reason of his having acted in any such capacity,
except with respect to any matter as to which he
shall have been adjudicated not to have acted in
good faith in the reasonable belief that his action
was in the best interest of the Trust and furthermore,
in the case of any criminal proceeding, so long as he
had no reasonable cause to believe that the conduct
was unlawful, provided, however, that (1) no
Indemnitee shall be indemnified hereunder against
any liability to the Trust or its shareholders or any
expense of such Indemnitee arising by reason of
(i) willful misfeasance, (ii) bad faith, (iii) gross
negligence (iv) reckless disregard of the duties
involved in the conduct of his position (the conduct
referred to in such clauses (i) through (iv) being
sometimes referred to herein as "Disabling
Conduct"), (2) as to any matter disposed of by
settlement or a compromise payment by such
Indemnitee, pursuant to a consent decree or
otherwise, no indemnification either for said
payment or for any other expenses shall be provided
unless there has been a determination that such
settlement or compromise is in the best interests of
the Trust and that such Indemnitee appears to have
acted in good faith in the reasonable belief that his
action was in the best interests of the Trust and did
not involve Disabling Conduct by such Indemnitee
and (3) with respect to any action, suit or other
proceeding voluntarily prosecuted by any
Indemnitee as plaintiff, indemnification shall be
mandatory only if the prosecution of such action,
suit or other proceeding by such Indemnitee was
authorized by a majority of the full Board of
Trustees of the Trust. Notwithstanding the
foregoing, the Trust shall not be obligated to
provide any such indemnification to the extent such
provision would waive any right that the Trust
cannot lawfully waive.
(b) The Trust shall make advance
payments in connection with the expenses of
defending any action with respect to which
indemnification might be sought hereunder if the
Trust receives a written affirmation of the
Indemnitee's good faith belief that the standard of
conduct necessary for indemnification has been met
and a written undertaking to reimburse the Trust
unless it is subsequently determined that he is
entitled to such indemnification and if the Trustees
of the Trust determine that the facts then known to
them would not preclude indemnification. In
addition, at least one of the following conditions
must be met: (1) the Indemnitee shall provide
adequate security for his undertaking, (2) the Trust
shall be insured against losses arising by reason of
any lawful advances, or (3) a majority of a quorum
of Trustees of the Trust who are neither "interested
persons" of the Trust (as defined in Section 2(a)(19)
of the 0000 Xxx) nor parties to the proceeding
("Disinterested Non-Party Trustees") or an
independent legal counsel in a written opinion, shall
determine, based on a review of readily available
facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the Indemnitee
ultimately will be found entitled to indemnification.
(c) All determinations with respect to
indemnification hereunder shall be made (1) by a
final decision on the merits by a court or other body
of competent jurisdiction before whom the
proceeding was brought that such Indemnitee is not
liable by reason of Disabling Conduct or, (2) in the
absence of such a decision, by (i) a majority vote of
a quorum of the Disinterested Non-Party Trustees
of the Trust, or (ii) if such a quorum is not
obtainable or even if obtainable, if a majority vote
of such quorum so directs, independent legal
counsel in a written opinion.
(d) Each Indemnitee shall, in the
performance of its duties, be fully and completely
justified and protected with regard to any act or any
failure to act resulting from reliance in good faith
upon the books of account or other records of the
Trust, upon an opinion of counsel, or upon reports
made to the Trust by any of the Trust's officers or
employees or by any advisor, administrator,
manager, distributor, selected dealer, accountant,
appraiser or other expert or consultant selected with
reasonable care by the Trustees, officers or
employees of the Trust, regardless of whether such
counsel or other person may also be a Trustee.
(e) The rights accruing to any
Indemnitee under these provisions shall not exclude
any other right to which he may be lawfully
entitled.
SECTION 7. Relations with the Fund.
Subject to and in accordance with the
organizational documents of the Adviser and the
Trust, as well as their policies and procedures and
codes of ethics, it is understood that Trustees,
officers, agents and shareholders of the Fund are or
may be interested in the Adviser (or any successor
thereof) as directors, officers or otherwise, that
partners, officers and agents of the Adviser (or any
successor thereof) are or may be interested in the
Fund as Trustees, officers, agents, shareholders or
otherwise, and that the Adviser (or any such
successor thereof) is or may be interested in the
Fund as a shareholder or otherwise.
SECTION 8. Liability of Adviser.
The Adviser shall not be liable to the Fund
for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the
matters to which this Agreement relates; provided,
however, that no provision of this Agreement shall
be deemed to protect the Adviser against any
liability to the Fund or its shareholders to which it
might otherwise be subject by reason of any
Disabling Conduct nor shall any provision hereof be
deemed to protect any trustee or officer of the Fund
against any such liability to which he might
otherwise be subject by reason of any Disabling
Conduct.
SECTION 9. Duration and Termination of
this Agreement.
(a) Duration. This Agreement shall
become effective on the date first set forth above,
such date being the date on which this Agreement
has been executed following: (1) the approval of the
Trust's Board of Trustees, including approval by a
vote of a majority of the Trustees who are not
"interested persons" (as defined in the 0000 Xxx) of
the Adviser or the Fund, cast in person at a meeting
called for the purpose of voting on such approval;
and (2) the approval by a "vote of a majority of the
outstanding voting securities" (as defined in the
0000 Xxx) of the Fund. Unless terminated as herein
provided, this Agreement shall remain in full force
and effect until the date that is two years after the
effective date of this Agreement. Subsequent to
such initial period of effectiveness, this Agreement
shall continue in full force and effect, subject to
paragraph 9(c), so long as such continuance is
approved at least annually (a) by either the Trust's
Board of Trustees or by a "vote of a majority of the
outstanding voting securities" (as defined in the
0000 Xxx) of the Fund and (b) in either event, by the
vote of a majority of the Trustees of the Fund who
are not parties to this Agreement or "interested
persons" (as defined in the 0000 Xxx) of any such
party, cast in person at a meeting called for the
purpose of voting on such approval.
(b) Amendment. No provision of this
Agreement may be amended, waived, discharged or
terminated orally, but only by an instrument in
writing signed by the party against which
enforcement of the amendment, waiver, discharge
or termination is sought. Any amendment of this
Agreement shall be subject to the 1940 Act
including the interpretation thereof that
amendments that do not increase the compensation
of the Adviser or otherwise fundamentally alter the
relationship of the Trust with the Adviser do not
require shareholder approval if approved by the
requisite majority of the Trust's Trustees who are
not "interested persons" (as defined in the 0000
Xxx) of the Trust.
(c) Termination. This Agreement may
be terminated at any time, without payment of any
penalty, by vote of the Trust's Board of Trustees, or
by a "vote of a majority of the outstanding voting
securities" (as defined in the 0000 Xxx) of the Fund,
or by the Adviser, in each case on not more than 60
days' nor less than 30 days' prior written notice to
the other party.
(d) Automatic Termination. This
Agreement shall automatically and immediately
terminate in the event of its "assignment" (as
defined in the 1940 Act).
SECTION 10. Services Not Exclusive.
The services of the Adviser to the Fund
hereunder are not to be deemed exclusive, and the
Adviser (and its affiliates) shall be free to render
similar services to others so long as its services
hereunder are not impaired thereby; provided,
however, that the Adviser will undertake no
activities that, in its reasonable good faith judgment,
will adversely affect the performance of its
obligations under this Agreement. In addition, the
parties may enter into other agreements pursuant to
which the Adviser provides administrative or other,
non-investment advisory services to the Fund, and
the Adviser may be compensated for such other
services.
SECTION 11. Notices.
Notices under this Agreement shall be in
writing and shall be addressed, and delivered or
mailed postage prepaid, to the other party at such
address as such other party may designate from time
to time for the receipt of such notices. Until further
notice to the other party, the address of each party
to this Agreement for this purpose shall be 000
Xxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx, Xxxxx 00000.
SECTION 12. Governing Law; Severability;
Counterparts.
This Agreement shall be construed in
accordance with the laws of the State of Delaware
and the applicable provisions of the 1940 Act. To
the extent that applicable law of the State of
Delaware, or any of the provisions herein, conflict
with applicable provisions of the 1940 Act, the
latter shall control. 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 may be executed in any number of
counterparts, each of which shall be deemed to be
an original, but such counterparts shall, together,
constitute only one instrument.
SECTION 13. Use of the Name Highland.
The Adviser has consented to the use by the
Trust of the name or identifying word "Highland" in
the name of the Trust. Such consent is conditioned
upon the employment of the Adviser as the
investment adviser to the Trust. The name or
identifying word "Highland" may be used from time
to time in other connections and for other purposes
by the Adviser and any of its affiliates. The
Adviser may require the Trust to cease using
"Highland" in the name of the Trust if the Trust
ceases to employ, for any reason, the Adviser, any
successor thereto or any affiliate thereof as
investment adviser of the Trust.
SECTION 14. Miscellaneous.
The Adviser agrees to advise the Fund of
any change of its membership (which shall mean its
general partner) within a reasonable time after such
change. If the Adviser enters into a definitive
agreement that would result in a change of control
(within the meaning of the 0000 Xxx) of the
Adviser, it agrees to give the Fund the lesser of
60 days' written notice and such notice as is
reasonably practicable before consummating the
transaction.
Where the effect of a requirement of the
1940 Act reflected in or contemplated by any
provisions of this Agreement is altered by a rule,
regulation or order of the SEC, whether of special
or general application, such provision shall be
deemed to incorporate the effect of such rule,
regulation or order.
IN WITNESS WHEREOF, the parties
hereto have caused this Agreement to be executed
as of the date first set forth above.
HIGHLAND FLOATING RATE
OPPORTUNITIES FUND II
By:/s/ Xxxxxx Xxxxxx
Name: Xxxxxx Xxxxxx
Title: Assistant Secretary
HIGHLAND CAPITAL MANAGEMENT FUND
ADVISORS, L.P.
By:STRAND ADVISORS XVI, INC.,
its general partner
By:/s/ Xxxxx Xxxxxxxxxx
Name: Xxxxx Xxxxxxxxxx
Title: Treasurer
EXHIBIT A
Highland Floating Rate Opportunities
Fund II
Breakpoint Advisory Fee
First $1 billion 0.65%
Next $2 billion 0.60%
Over $2 billion 0.55%
