Exhibit (g)(2)
INVESTMENT SUB-ADVISORY AGREEMENT
---------------------------------
AGREEMENT, dated August 4, 1989, between Hyperion Capital Management, Inc.
(the "Adviser"), a Delaware corporation, and Pacholder Associates Inc. (the
"Sub-Adviser"), an Ohio corporation.
WHEREAS, the Adviser has entered into an Investment Advisory Agreement (the
"Advisory Agreement") of even date herewith with The Hyperion Total Return Fund,
Inc. (the "Fund"), a Maryland corporation; and
WHEREAS, the Adviser seeks to retain the Sub-Adviser in connection with the
Adviser's duties and obligations under said Investment Advisory Agreement and
the Sub-Adviser desires to provide such assistance.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is agreed by and between the parties hereto as
follows:
1. In General
The Sub-Adviser agrees, all as more fully set forth herein, to act as
investment adviser to the Adviser with respect to the investment of that portion
of the Fund's assets constituting high yield, fixed income securities of U.S.
corporations ("High Yield Securities") and to provide investment research and
advice with respect to, supervise and arrange the purchase of High Yield
Securities for and the sale of High Yield Securities held in the investment
portfolio of the Fund (the High Yield Securities portion of the Fund's portfolio
is referred to herein as the "Portfolio").
2. Duties and Obligations of the Sub-Adviser with Respect to Investments of
Assets of the Fund
(a) Subject to the succeeding provisions of this paragraph and subject to the
direction and control of the Adviser, the Sub-Adviser shall (i) act as
investment adviser for and supervise and manage the investment and
reinvestment of the Portfolio only and in connection therewith have
complete discretion in purchasing and selling High Yield Securities for the
Fund and in voting, exercising consents and exercising all other rights
appertaining to such securities on behalf of the Fund; (ii) supervise
continuously the investment program of the Fund and the composition of its
investment portfolio only as such program and portfolio pertain to High
Yield Securities; and (iii) arrange, subject to the provisions of paragraph
3 hereof, for the purchase and sale of High Yield Securities held in the
Portfolio.
(b) In the performance of its duties under this Agreement, the Sub-Adviser
shall at all times conform to, and act in accordance with, any requirements
imposed by (i) the provisions of the Investment Company Act of 1940 (the
"Act"), and of any rules or regulations in force thereunder; (ii) the
provisions of Subchapter M of the Internal Revenue Code of 1986, as
amended, and of any rules or regulations in force thereunder; (iii) any
other applicable provision of law; (iv) any policies and determinations of
the Board of Directors of the Fund and of the Adviser; and (v) the
provisions of the Articles of Incorporation and By-Laws of the Fund, as
such documents are amended from time to time.
(c) The Sub-Adviser will bear all costs and expenses of its partners and
employees and any overhead incurred in connection with its duties hereunder
and shall bear the costs of any salaries or directors fees of any officers
or directors of the Fund who are affiliated persons (as defined in the Act)
of the Sub-Adviser.
(d) The Sub-Adviser shall give the Adviser the benefit of its best judgment and
effort in rendering services hereunder, but the Sub-Adviser shall not be
liable for any act or omission or for any loss sustained by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from 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 under this Agreement.
(e) Nothing in this Agreement shall prevent the Sub-Adviser or any director,
officer, employee or other affiliate thereof from acting as investment
adviser for any other person, firm or corporation, or from engaging in any
other lawful activity, and shall not in any way limit or restrict the
Sub-Adviser or any of its partners, officers, employees or agents from
buying, selling or trading any securities for its or their own accounts or
for the accounts of others for whom it or they may be acting, provided,
however, that the Sub-Adviser will undertake no activities which, in its
judgment, will adversely affect the performance of its obligations under
this Agreement.
(f) (i) The Adviser will have sole and absolute discretion to determine the
amount or percentage of Fund assets to be invested in High Yield
Securities. The Sub-Adviser shall invest that portion of the Fund's assets
designated by the Adviser for High Yield Securities as soon as practicable
or at such later time as the Adviser may direct after such funds are made
available for investment. From time to time the Adviser may determine to
increase or decrease the amount or percentage of Fund assets to be invested
in High Yield Securities. If the Adviser determines to increase such amount
or percentage, the Sub-Adviser shall invest such additional funds in High
Yield Securities as soon as practicable, or at such later time as the
Adviser may direct, after (i) notice of such increase is given to the
Sub-Adviser and (ii) such additional funds are made available for
investment. If, on the other hand, the Adviser determines to decrease such
amount or percentage, the Sub-Adviser shall, as soon as practicable, or at
such later time as the Adviser may direct, after notice of such decrease is
given to the Sub-Adviser, liquidate that portion of the Portfolio required
for the Portfolio to represent the desired amount or percentage of the Fund
assets and cause such liquidated assets to be available to the Adviser.
(ii) Hedging of positions in the Portfolio, if any, will be undertaken by the
Adviser in consultation with the Sub-Adviser.
(g) The Sub-Adviser shall provide the Adviser with monthly reports within 5
business days of the end of each month and quarterly reports within 7
business days of the end of each calendar quarter. Such reports shall
include (i) an itemized print-out of the Portfolio as of the last day of
the period, including the current market value thereof (ii) a statement of
the Sub-Adviser's advice concerning the Fund's investments in High Yield
Securities in light of the objectives of the Fund and the then current
market conditions, (iii) a print-out of the performance of the Portfolio
relative to a mutually agreed upon High Yield securities index, and (iv)
such other information as the Adviser may from time to time reasonably
request.
3. Portfolio Transactions and Brokerage
The Sub-Adviser is authorized, for the purchase and sale of
the securities in the Portfolio, to employ such securities dealers as
may, in the judgment of the Sub-Adviser, implement the policy of the
Fund to obtain the best net results taking into account such factors as
price, including dealer spread, the size, type and difficulty of the
transaction involved, the firm's general execution and operational
facilities and the firm's risk in positioning the securities involved.
Consistent with this policy, the Sub-Adviser is authorized to direct
the execution of Portfolio transactions to dealers and brokers
furnishing statistical information or research deemed by the
Sub-Adviser to be useful or valuable to the performance of its
investment advisory functions for the Portfolio. In addition, the
Sub-Adviser may give proper instructions to the Fund's custodian in
connection with the purchase or sale of High Yield Securities. The
Adviser, upon the Sub-Adviser's request, shall confirm such authority
to the Custodian.
4. Compensation of the Sub-Adviser
(a) The Adviser agrees to pay to the Sub-Adviser and the Sub-Adviser agrees to
accept as full compensation for all services rendered by the Sub-Adviser as
such, a fee computed and payable monthly in an amount equal to .35% per
annum of the Portfolio's average weekly net assets on an annualized basis,
for the then-current fiscal year. For any period less than a month during
which this Agreement is in effect, the fee shall be prorated according to
the proportion which such period bears to a full month of 28, 29, 30 or 31
days, as the case may be.
(b) For purposes of this Agreement, the average weekly net assets of the
Portfolio shall mean the average weekly value of the total assets of the
Portfolio, minus the sum of (i) accrued liabilities (including accrued
expenses) directly related to the Portfolio, (ii) that percent of both
declared and unpaid dividends on the Common Shares issued by the Fund and
any Preferred Shares issued by the Fund (the "Preferred Shares") and any
accumulated dividends on any Preferred Shares, but without deducting the
aggregate liquidation value of the Preferred Shares, that is equal to the
percent of the Fund's assets that the Portfolio represents, and (iii) that
percent of accrued liabilities related to the Fund in general that is equal
to the percent of the Fund's assets that the Portfolio represents. The
average weekly net assets of the Portfolio shall be calculated pursuant to
the procedures adopted by resolutions of the Directors of the Fund for
calculating the net asset value of the Fund's shares or delegating such
calculations to third parties and such determination shall be binding on
the Sub-Adviser.
5. Indemnity
(a) Subject to and only to the extent of the indemnification provided to the
Adviser by the Fund in the Advisory Agreement, the Adviser hereby agrees to
indemnify the Sub-Adviser and each of the Sub-Adviser's directors,
officers, employees and agents (including any individual who serves at the
Sub-Adviser's request as director, officer, partner, trustee or the like of
another corporation or other entity in connection with the Sub-Adviser's
duties under this Agreement) (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 corporate 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 Section 5 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 Fund and
the Adviser 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 Adviser or the Fund or its
stockholders or any expense of such indemnitee arising by reason of (i)
willful misfeasance, (ii) bad faith, (iii) gross negligence or (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, in accordance with paragraph 5(c) below, that such
settlement or compromise is in the best interests of the Fund and the
Adviser and that such indemnitee appears to have acted in good faith in the
reasonable belief that his action was in the best interest of the Fund and
the Adviser and did not involve disabling conduct by such indemnitee, (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 the Adviser and (4) the indemnity provided herein shall
only be effective if, and to the extent, the Adviser is indemnified by the
Fund pursuant to the Advisory Agreement for the loss related to such
indemnity.
(b) To the extent made available to the Adviser pursuant to the Advisory
Agreement, the Adviser shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification
might be sought hereunder if the Adviser 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
Adviser, unless it is subsequently determined that it is entitled to such
indemnification and if the Adviser and the directors of the Fund determine
that the facts then known to them would not preclude indemnification. In
addition, at least one of the following conditions must be met: (A) the
indemnitee shall provide a security for this undertaking, (B) the Adviser
and the Fund shall be insured against losses arising by reason of any
lawful advances, (C) a majority of a quorum consisting of directors of the
Fund who are neither "interested persons" of the Fund (as defined in
Section 2(a)(19) of the Act) nor parties to the proceeding ("Disinterested
Non-Party Directors") or (D) 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 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) the
Advisor together with a majority vote of a quorum of the Disinterested
Non-Party Directors of the Fund, 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. All determinations
regarding advance payments in connection with the expense of defending any
proceeding shall be authorized in accordance with the immediately preceding
clause (2) above.
The rights accruing to any indemnitee under these provisions shall not
exclude any other right to which he may be lawfully entitled.
6. Duration and Termination
(a) This Agreement shall become effective on the date first set forth above and
shall continue in effect until the next meeting of stockholders of the Fund
(but in any event not more than two years after such effective date) and
thereafter from year to year, but only so long as such continuation is
specifically approved at least annually in accordance with the requirements
of the Investment Company Act of 1940.
(b) This Agreement may be terminated by the Sub-Adviser at any time without
penalty upon giving the Adviser sixty days' written notice (which notice
may be waived by the Adviser) and may be terminated by the Adviser at any
time without penalty upon giving the Sub-Adviser sixty days' notice (which
notice may be waived by the Sub-Adviser); provided that such termination by
the Adviser shall be directed or approved by the vote of a majority of the
Directors of the Fund in office at the time or by the vote of the holders
of a "majority" (as defined in the Investment Company Act of 1940) of the
voting securities of the Fund at the time outstanding and entitled to vote.
This Agreement shall terminate automatically in the event of its assignment
(as "assignment" is defined in the Investment Company Act of 1940). The
Sub-Adviser represents that it is a corporation and will notify the Adviser
promptly after any change in control of such corporation, as defined in
Section 2(a)(9) of the Act.
7. Assignment
This Agreement may not be assigned by either party hereto without the prior
written consent of the other party.
8. Notices
Any notice under this Agreement shall be in writing to the other party at
such address as the other party may designate from time to time for the receipt
of such notice and shall be deemed to be received on the date actually received.
9. Governing Law
This Agreement shall be construed in accordance with the laws of the State
of New York for contracts to be performed entirely therein without reference to
choice of law principles thereof and in accordance with the applicable
provisions of the Act.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument
to be executed by their duly authorized officers and their respective seals to
be hereunto affixed, all as of the day and the year first above written.
[SEAL] HYPERION CAPITAL MANAGEMENT, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
---------------------------
Xxxxxxx X. Xxxxxxxx
[SEAL] PACHOLDER ASSOCIATES INC.
By: /s/ Xxxxx X. Xxxxxxxx, Xx.
----------------------------------
Xxxxx X. Xxxxxxxx, Xx.
