Exhibit (G)(1)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT dated __________________ between The Hyperion Strategic Mortgage
Income Fund, Inc. (the "Fund"), a Maryland corporation, and Hyperion Capital
Management, Inc. (the "Adviser"), a Delaware corporation.
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 Adviser agrees, all as more fully set forth herein, to act as
investment adviser to the Fund with respect to the investment of the Fund's
assets and to supervise and arrange the purchase of securities for and the
sale of securities held in the investment portfolio of the Fund.
2. Duties and obligations of the Adviser with respect to investments
of assets of the Fund
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(a) Subject to the succeeding provisions of this paragraph and subject
to the direction and control of the Fund's Board of Directors, the Adviser
shall (i) act as investment adviser for and supervise and manage the
investment and reinvestment of the Fund's assets and in connection
therewith have complete discretion in purchasing and selling securities and
other assets for the Fund and in voting, exercising consents and exercising
all other rights appertaining to such securities and other assets on behalf
of the Fund; (ii) supervise continuously the investment program of the Fund
and the composition of its investment portfolio; and (iii) arrange, subject
to the provisions of paragraph 3 hereof, for the purchase and sale of
securities and other assets held in the investment portfolio of the Fund.
(b) In the performance of its duties under this Agreement, the 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) any other
applicable provision of law; (iii) the Provisions of the Articles of
Incorporation and By-Laws of the Fund, as such documents are amended from
time to time; and (iv) any policies and determinations of the Board of
Directors of the Fund.
(c) The 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 Adviser.
(d) The Adviser shall give the Fund the benefit of its best judgment
and effort in rendering services hereunder, but the 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 Adviser or any
director, officer, employee or other affiliate thereof from acting as
investment adviser for any other other person, firm or corporation, or from
engaging in any lawful activity, and shall not in any way limit or restrict
the 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 Adviser will undertake no activities which, in its
judgment, will adversely affect the performance of its obligations under
this Agreement.
3. Portfolio Transactions and Brokerage
The Adviser is authorized, for the purchase and sale of the Fund's
portfolio securities, to employ such securities dealers as may, in the
judgment of the 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
Adviser is authorized to direct the execution of the Fund's portfolio
transactions to dealers and brokers furnishing statistical information or
research deemed by the Adviser to be useful or valuable to the performance
of its investment advisory functions for the Fund.
4. Compensation of the Adviser
(a) The Fund agrees to pay to the Adviser and the Adviser agrees to
accept as full compensation for all services rendered by the Adviser as
such, a fee computed and payable monthly in an amount equal to .65% of the
Fund'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 Fund shall mean the average weekly value of the total assets of the
Fund, minus the sum of accrued liabilities (including accrued expenses) of
the Fund and any declared but 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. The
average weekly net assets of the Fund 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.
5. Indemnity
(a) The Fund hereby agrees to indemnify the Adviser and each of the
Adviser's directors, 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 or other entity) (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 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 Fund or its shareholders
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 that such settlement or compromise is in the best interests
of the Fund 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 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 the Fund.
(b) The Fund shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification
might be sought hereunder if the Fund 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
Fund unless it is subsequently determined that he is entitled to such
indemnification and if 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 Fund shall be insured
against losses arising by reason of any lawful advances, or (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 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) 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
This Agreement shall become effective on the date first set forth
above and shall continue in effect until approved by _____________, the
sole shareholder of the Fund. The Agreement shall continue for two (2)
years 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.
This Agreement may be terminated by the Adviser at any time without
penalty upon giving the Fund sixty days' written notice (which notice may
be waived by the Fund) and may be terminated by the Fund at any time
without penalty upon giving the Adviser sixty days' notice (which notice
may be waived by the Adviser), provided that such termination by the Fund
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).
7. 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 earlier of
the date actually received or on the fourth day after the postmark if such
notice is mailed first class postage prepaid.
8. 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.
THE HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
By: -----------------------------------
HYPERION CAPITAL MANAGEMENT, INC.
By:
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