Exhibit (g)(2)
FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this __ day of ________, 2001 by and between CNA INCOME
SHARES, INC., a Maryland corporation (the "Company"), and HIGHLAND CAPITAL
MANAGEMENT, L.P., a Delaware limited partnership (the "Adviser").
WITNESSETH:
WHEREAS, the Company engages in business as a closed-end management
investment company and is registered as such under the Investment Company Act of
1940 ("1940 Act"); and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, and is engaged in the business of providing
investment advice; and
WHEREAS, the Company desires to retain the Adviser to render such services
in the manner and on the terms and conditions hereinafter set forth; and
WHEREAS, the Adviser desires to perform such services in the manner and on
the terms and conditions hereinafter set forth;
NOW, THERFORE, the Company and the Adviser agree as follows:
1. The Company hereby employs the Adviser to provide investment advisory
and statistical services and research facilities and services, to supervise the
composition of the Company's portfolio continuously, and to determine the nature
and timing of changes therein and the manner of effectuating such changes,
subject to supervision by the Company's Board of Directors and for the period
and on the terms set forth of this Agreement. The Adviser hereby accepts such
employment and agrees to render the services and to assume the obligations
herein set forth, for the compensation herein provided. The Adviser shall for
all purposes herein be deemed an independent contractor.
2. The Adviser shall furnish to the Company, at the Adviser's expense:
(a) research and statistical and other factual information and reports
with respect to securities held by the Company or which the Company might
purchase. It will also furnish to the Company such information as may be
appropriate concerning developments which may affect issuers of securities
held by the Company or which the Company might purchase or the businesses
in which such issuers may be engaged. Such statistical and other factual
information and reports shall include information and reports on
industries, businesses, corporations and all types of securities, whether
or not the Company has at any time any holdings in such industries,
businesses, corporations or securities,
(b) from time to time, advice, information and recommendations with
respect to the acquisition, holding, or disposition by the Company of
securities in which the Company is permitted to invest in accordance with
its investment objectives, policies and limitations,
(c) necessary assistance in:
(i) The preparation of all reports now or hereafter required by
federal or other laws.
(ii) The preparation of prospectuses, registration statements and
amendments thereto that may be required by federal or other laws or by
the rules or regulations of any duly authorized commission or
administrative body. However, the Adviser shall not be obligated to
pay the costs of preparation, printing, or mailing of prospectuses
used in connection with sales of the Company's shares or for any other
purpose, unless otherwise provided herein.
(d) office space at such place as may be agreed upon from time to
time, and all necessary office facilities, business equipment, supplies,
utilities and telephone service for managing the affairs and investments of
the Company.
3. Except as otherwise expressly provided herein, the Company assumes and
shall pay or cause to be paid all costs and expenses of the Company, including,
without limitation:
(a) officers', directors' and employees compensation and expenses,
except that the Adviser shall pay all fees, salaries or other remuneration
of directors and officers of the Company who also serve as directors,
officers or employees of or special consultants to the Adviser or any
affiliate thereof.
(b) all costs and expenses incident to any public offering of
securities of the Company, for cash or otherwise, including those relating
to the registration of shares under the Securities Act of 1933, as amended,
the qualification of shares of the Company under state securities laws, the
printing or other reproduction and distribution of any registration
statement (and all amendments thereto) under the Securities Act of 1933,
the preliminary and final prospectuses included therein, and any other
necessary documents including underwriting documents incident to any public
offering, the advertising of shares of the Company and review by the
National Association of Securities Dealers, Inc. of any underwriting
arrangements;
(c) the charges and expenses of any registrar, custodian or depository
appointed by the Company for the safekeeping of its cash, portfolio
securities and other property;
(d) the charges and expenses of auditors;
(e) the charges and expenses of any stock transfer or dividend
disbursing agent, stockholder servicing agent or other agents appointed by
the Company;
(f) brokers' charges and expenses, including without limitation
brokers' commissions and fees, dealer xxxx-ups and other charges and
expenses incurred in the acquisition or disposition of portfolio
securities;
(g) all taxes, including securities issuance and transfer taxes, and
corporate fees payable by the Company to federal, state or other
governmental agencies;
(h) the cost and expense of engraving or printing of stock
certificates representing shares of the Company;
(i) fees involved in registering and maintaining registrations of the
Company and of its shares with the Securities and Exchange Commission under
the 1940 Act and with various states and other jurisdictions;
(j) all expenses of stockholders' and directors' meetings and of
preparing, printing and mailing proxy statements and quarterly, semi-annual
and annual reports to stockholders;
(k) all fees and expenses incident to any dividend or distribution
program, including without limitation, the Company's Automatic Dividend
Investment Plan;
(l) charges and expenses of legal counsel in connection with matters
relating to the Company, including, without limitation, legal services
rendered in connection with the Company's corporate and financial structure
and relations with its stockholders, issuances of Company shares, and
registrations and qualifications of securities under federal, state and
other laws;
(m) association dues;
(n) interest payable on Company borrowings;
(o) fees and expenses incident to the listing of the Company shares on
any stock exchange and continued compliance with listing requirements;
(p) 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;
(q) the expense of keeping the general accounts and records of the
Company;
(r) postage;
(s) such other non-recurring or extraordinary expenses of the Company
as may arise, including expenses of actions, suits or proceedings to which
the Company is a party and expenses resulting from the legal obligation
which the Company may have to provide indemnity with respect thereto; and
(t) expenses and fees reasonably incidental to any of the foregoing.
4. In return for its advisory services, the Company will pay the Adviser a
monthly fee at an annual rate of 0.5% of the average weekly net assets of the
Company. 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 manner consistent with the calculation of the fees
payable on a monthly basis. Subject to the provisions of paragraph 5 hereof, the
accrued fees will be payable monthly as promptly as possible after the end of
each month during which this Agreement is in effect.
5. Except as provided below, if costs and expenses borne by the Company,
including amounts payable to the Adviser pursuant to paragraph 4 hereof for any
fiscal year ending on a date on which this Agreement is in effect exceed one and
one-half percent (1.5%) of the first thirty million dollars ($30,000,000) of the
average net assets of the Company, plus one percent (1%) of the average net
assets of the Company in excess of $30,000,000, in each case computed by
dividing (i) the sum of the net asset values of the Company as of the last
business day of each week of such fiscal year or of each week during such fiscal
year during which this Agreement was in effect, as the case may be, by (ii) the
number of weeks of such fiscal year or the number of weeks (including a partial
week) during which this Agreement is in effect during such years, as the case
may be, the Adviser will pay to the Company the amount of such excess as soon as
is practicable at the end of a fiscal year of the Company. However, although
payment shall be made by the Adviser as soon as is practicable at the end of a
fiscal year of the Company, the determination of whether reimbursement for such
costs and expenses is due the Company 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 which is due shall serve as an
offset to the investment advisory fee payable monthly by the Company to the
Adviser pursuant to paragraph 4 hereof, and the amount to be paid by the Adviser
to the Company as soon as is practicable at the end of a fiscal year of the
Company shall be equal to the difference between the aggregate reimbursement due
the Company from the Adviser for that fiscal year and the aggregate offsets made
by the Company against the aggregate investment advisory fees payable to the
Adviser pursuant to paragraph 4 hereof for that fiscal year by virtue of such
aggregate reimbursement. The foregoing limitation on reimbursement of costs and
expenses shall exclude interest, taxes, brokers' charges and expenses,
extraordinary costs and expenses (as determined by the Board in its exercise of
its business judgment), and, if payable by the Company, the costs and expenses
incident to the public offering or private placement of securities of the
Company, including debt securities, other than the costs and expenses incident
to the issuance of shares under the Automatic Dividend Investment Plan.
6. The services of the Adviser to the Company are not to be deemed
exclusive, and the Adviser shall be free to engage in any other business or to
render investment advisory or management services of any kind to any other
corporation, partnership, trust, individual or association, including any other
investment company, so long as its services hereunder are not impaired thereby.
Nothing in this Agreement shall limit or restrict the right of any director,
officer or employee of the Adviser 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 or dissimilar nature.
7. The Adviser assumes no responsibility under this Agreement other than to
render the services called for hereunder in good faith. The Adviser shall not be
responsible for any action of the Board of Directors of the Company or any
committee thereof in following or declining to follow any advice or
recommendation of the Adviser. The Adviser shall be entitled to rely on written
instructions of the President or any Vice President of the Company or of a
majority of the Board of Directors of the Company.
8. Neither the Adviser, nor any partner, officer, agent or employee of the
Adviser shall be liable or responsible to the Company or its stockholders for
any error of judgment, mistake of law, any other act or omission in the
performance by the Adviser of its duties hereunder, or for any loss arising out
of any investment or suffered by the Company 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
Company or its shareholders to which it might otherwise be subject by reason of
any willful misfeasance, bad faith or gross negligence in the performance of its
duties, or the reckless disregard of its obligations and duties under this
Agreement ("disabling conduct").
The Company will indemnify the Adviser against, and hold the Adviser
harmless from, any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses), including any amounts paid in
satisfaction of judgments, in compromise or as fines or penalties, not resulting
from the Adviser's disabling conduct. Indemnification shall be made only
following: (i) a final decision on the merits by a court or other body before
whom the proceeding was brought that the Adviser was not liable by reason of
disabling conduct or (ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the Adviser was not liable
by reason of disabling conduct by (a) the vote of a majority of a quorum of
Directors of the Company who are neither "interested persons" (as defined in the
0000 Xxx) of the Company nor parties to the proceeding ("disinterested non-party
directors") or (b) independent legal counsel in a written opinion. The Adviser
shall be entitled to advances from the Company for payment of the reasonable
expenses incurred by the Adviser in connection with the matter as to which it is
seeking indemnification in the manner and to the fullest extent permissible
under Maryland law and the 1940 Act. The Adviser shall provide to the Company a
written affirmation of its good faith belief that the standard of conduct
necessary for indemnification by the Company has been met and a written
undertaking to repay any such advance if it should ultimately be determined that
the standard of conduct has not been met. In addition, at least one of the
following additional conditions shall be met: (a) the Adviser shall provide
security in form and amount acceptable to the Company for its undertaking; (b)
the Company is insured against losses arising by reason of the advance; or (c) a
majority of a quorum of disinterested non-party directors, or independent legal
counsel in a written opinion, shall have determined, based on a review of facts
readily available to the Company at the time the advance is proposed to be made,
that there is reason to believe that the Adviser will ultimately be found to be
entitled to indemnification. Notwithstanding any other provision of this
Agreement to the contrary, any indemnification or advance made pursuant to this
paragraph 8 shall be made in accordance with all applicable requirements of the
1940 Act and Securities and Exchange Commission interpretation of those
requirements.
9. This Agreement has been approved by the Board of Directors of the
Company, including all of the Directors who are not "interested persons" (as
defined in the 0000 Xxx) of the Adviser or the Company on February 9, 2001, and
by a majority of the outstanding voting securities of the Company on the date
hereof. Unless terminated as herein provided, this Agreement shall remain in
full force and effect until the date which is two years after the effective date
of this Agreement. Subsequent to such initial period of effectiveness, this
Agreement shall continue in effect from year to year thereafter (unless sooner
terminated as hereinafter provided), provided its continuance is specifically
approved at least annually by (a) the Board of Directors of the Company or the
vote of a majority of the outstanding voting securities of the Company and (b)
the vote of a majority of the Directors of the Company who are not "interested
persons" (as defined in the 0000 Xxx) of the Adviser or the Company cast in
person at a meeting called for the purpose of voting upon such approval,
provided, however, that (i) the Company may, at any time and without the payment
of any penalty, terminate this Agreement upon sixty days' written notice to the
Adviser either by majority vote of the Board of Directors of the Company or by
the vote of a majority of the outstanding voting securities of the Company; (ii)
this Agreement shall immediately terminate in the event of its assignment
(within the meaning of the 0000 Xxx); and (iii) the Adviser may terminate this
Agreement without payment of penalty on sixty days' written notice to the
Company.
10. 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 00000 Xxxx Xxxx, Xxxxx 0000, Xxxxxx,
Xxxxx 00000.
11. For purposes of this Agreement, a "majority of the outstanding voting
securities of the Company" shall be determined in accordance with the applicable
provisions of the 1940 Act.
12. This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the 1940 Act. To the extent
applicable law of the State of New York, or any of the provisions herein,
conflict with applicable provisions of the 1940 Act, the latter shall control.
13. The Adviser agrees to advise the Company of any change of its
membership (which shall mean its general partner) within a reasonable time after
such change.
14. The Company recognizes that from time to time the Adviser's partners,
officers and employees may serve as directors, trustees, partners, officers and
employees of other business trusts, corporations, partnerships or other entities
(including other investment companies) and that such other entities may include
the words "Prospect Street" as part of their name, and that the Adviser or its
affiliates may enter into investment advisory or other agreements with such
other entities. If the Adviser ceases to act as the Company's investment
adviser, the Company agrees, at the Adviser's request, to take all necessary
action to change the name of the Company to a name not including "Prospect
Street" in any form or combination of words.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written.
CNA INCOME SHARES, INC.
By: _____________________________
President
ATTEST:
----------------------------
Secretary
HIGHLAND CAPITAL MANAGEMENT, L.P.
By: Strand Advisors, Inc., its general
partner
By: _____________________________
President
