INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of the_____________________, by and between DEBT
STRATEGIES FUND III, INC., a Maryland corporation (the "Fund"), and FUND ASSET
MANAGEMENT, L.P., a Delaware limited partnership (the "Investment Adviser").
W I T N E S S E T H:
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WHEREAS, the Fund is engaged in business as a closed-end, diversified,
management investment company registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"); and
WHEREAS, the Investment Adviser is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Fund desires to retain the Investment Adviser to provide
management and investment advisory services to the Fund in the manner and on the
terms hereinafter set forth; and
WHEREAS, the Investment Adviser is willing to provide management and
investment advisory services to the Fund on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Investment Adviser hereby agree as
follows:
ARTICLE I.
Duties of the Investment Adviser
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The Fund hereby employs the Investment Adviser to act as investment adviser
of the Fund and to furnish, or arrange for its affiliates to furnish, the
investment advisory services
described below, subject to the policies of, review by and overall control of
the Board of Directors of the Fund, for the period and on the terms and
conditions set forth in this Agreement. The Investment Adviser hereby accepts
such employment and agrees during such period, at its own expense, to render, or
arrange for the rendering of, such services and to assume the obligations herein
set forth for the compensation provided for herein. The Investment Adviser and
its affiliates for all purposes herein shall be deemed to be independent
contractors and, unless otherwise expressly provided or authorized, shall have
no authority to act for or represent the Fund in any way or otherwise be deemed
agents of the Fund.
(a) Administrative Services. The Investment Adviser shall perform, or arrange
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for its affiliates to perform, the management and administrative services
necessary for the operation of the Fund, including administering shareholder
accounts and handling shareholder relations pursuant to an Administration
Agreement of even date herewith.
(b) Investment Advisory Services. The Investment Adviser shall provide, or
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arrange for its affiliates to provide, the Fund with such investment research,
advice and supervision as the latter from time to time may consider necessary
for the proper supervision of the assets of the Fund, shall furnish continuously
an investment program for the Fund and shall determine from time to time which
securities shall be purchased, sold or exchanged and what portion of the assets
of the Fund shall be held in the various securities in which the Fund invests,
options, futures, options on futures or cash, subject always to the restrictions
of the Articles of Incorporation and the By-Laws of the Fund, as amended from
time to time, the provisions of the Investment Company Act and the statements
relating to the Fund's investment objective, investment policies and investment
restrictions as the same are set forth in filings made by the Fund under the
Federal securities laws. The Investment Adviser shall make decisions for the
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Fund as to the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the Fund's portfolio securities shall
be exercised. Should the Board of Directors at any time, however, make any
definite determination as to investment policy and notify the Investment Adviser
thereof in writing, the Investment Adviser shall be bound by such determination
for the period, if any, specified in such notice or until similarly notified
that such determination has been revoked. The Investment Adviser shall take, on
behalf of the Fund, all actions which it deems necessary to implement the
investment policies determined as provided above, and in particular to place all
orders for the purchase or sale of portfolio securities for the Fund's account
with brokers or dealers selected by it, and to that end, the Investment Adviser
is authorized as the agent of the Fund to give instructions to the custodian of
the Fund as to deliveries of securities and payments of cash for the account of
the Fund. In connection with the selection of such brokers or dealers and the
placing of such orders with respect to assets of the Fund, the Investment
Adviser is directed at all times to seek to obtain execution and prices within
the policy guidelines determined by the Board of Directors and set forth in
filings made by the Fund under the Federal securities laws. Subject to this
requirement and the provisions of the Investment Company Act, the Securities
Exchange Act of 1934, as amended, and other applicable provisions of law, the
Investment Adviser may select brokers or dealers with which it or the Fund is
affiliated.
(c) Notice Upon Change in Partners of the Investment Adviser. The Investment
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Adviser is a limited partnership and its limited partner is Xxxxxxx Xxxxx & Co.,
Inc. and its general partner is Princeton Services, Inc. The Investment Adviser
will notify the Fund of any change in the membership of the partnership within a
reasonable time after such change.
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ARTICLE II.
Allocation of Charges and Expenses
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(a) The Investment Adviser. The Investment Adviser shall provide the staff and
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personnel necessary to perform its obligations under this Agreement, shall
assume and pay or cause to be paid all expenses incurred in connection with the
maintenance of such staff and personnel, and, at its own expense, shall provide
the office space, facilities, equipment and necessary personnel which it is
obligated to provide under Article I hereof, and shall pay all compensation of
officers of the Fund and all Directors of the Fund who are affiliated persons of
the Investment Adviser.
(b) The Fund. The Fund assumes, and shall pay or cause to be paid, all other
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expenses of the Fund including, without limitation: taxes, expenses for legal
and auditing services, costs of printing proxies, stock certificates,
shareholder reports and prospectuses, charges of the custodian, any sub-
custodian and transfer agent, charges of any auction agent and broker dealers in
connection with preferred stock of the Fund, expenses of portfolio transactions,
Securities and Exchange Commission fees, expenses of registering the shares of
common stock and preferred stock under Federal, state and foreign laws, fees and
actual out-of-pocket expenses of Directors who are not affiliated persons of the
Investment Adviser, accounting and pricing costs (including the daily
calculation of the net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or nonrecurring expenses, and other expenses
properly payable by the Fund. It also is understood that the Fund will reimburse
the Investment Adviser for its costs incurred in providing accounting services
to the Fund.
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ARTICLE III.
Compensation of the Investment Adviser
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(a) Investment Advisory Fee. For the services rendered, the facilities
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furnished and the expenses assumed by the Investment Adviser, the Fund shall pay
to the Investment Adviser at the end of each calendar month a fee based upon the
average weekly value of the net assets of the Fund at the annual rate of 0.60 of
1.0% (0.60%) of the average weekly net assets of the Fund plus the proceeds of
any outstanding borrowing used for leverage ("average weekly net assets" means
the average weekly value of the total assets of the Fund, minus the sum of (i)
accrued liabilities of the Fund, (ii) any accrued and unpaid interest on
outstanding borrowing and (iii) accumulated dividends on shares of outstanding
preferred stock), commencing on the day following effectiveness hereof. For
purposes of this calculation, average weekly net assets is determined at the end
of each month on the basis of the average net assets of the Fund for each week
during the month. The assets for each weekly period are determined by averaging
the net assets at the last business day of a week with the net assets at the
last business day of the prior week. It is understood that the liquidation
preference of any outstanding preferred stock (other than accumulated dividends)
is not considered a liability in determining the Fund's average weekly net
assets. 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 that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fee as set forth above. Subject to the
provisions of subsection (b) hereof, payment of the Investment Adviser's
compensation for the preceding month shall be made as promptly as possible after
completion of the computations contemplated by subsection (b) hereof. During any
period when the determination of net asset value is suspended by the Board of
Directors, the average net asset
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value of a share for the last week prior to such suspension shall for this
purpose be deemed to be the net asset value at the close of each succeeding week
until it is again determined.
(b) Expense Limitations. In the event the operating expenses of the Fund,
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including amounts payable to the Investment Adviser pursuant to subsection
(a) hereof, for any fiscal year ending on a date on which this Agreement is
in effect exceed the expense limitations applicable to the Fund imposed by
applicable state securities laws or regulations thereunder, as such
limitations may be raised or lowered from time to time, the Investment
Adviser shall reduce its investment advisory fee by the extent of such
excess and, if required pursuant to any such laws or regulations, will
reimburse the Fund in the amount of such excess; provided, however, to the
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extent permitted by law, there shall be excluded from such expenses the amount
of any interest, taxes, distribution fees, brokerage fees and commissions and
extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto) paid
or payable by the Fund. Whenever the expenses of the Fund exceed a pro rata
portion of the applicable annual expense limitations, the estimated amount of
reimbursement under such limitations shall be applicable as an offset against
the monthly payment of the fee due to the Investment Adviser. Should two or more
such expense limitations be applicable as at the end of the last business day of
the month, that expense limitation which results in the largest reduction in the
Investment Adviser's fee shall be applicable.
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ARTICLE IV.
Limitation of Liability of the Investment Adviser
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The Investment Adviser 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 management of the Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. As used in this
Article IV, the term "Investment Adviser" shall include any affiliates of the
Investment Adviser performing services for the Fund contemplated hereby and
directors, officers and employees of the Investment Adviser and of such
affiliates.
ARTICLE V.
Activities of the Investment Adviser
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The services of the Investment Adviser to the Fund are not to be deemed to
be exclusive; the Investment Adviser and any person controlled by or under
common control with the Investment Adviser (for purposes of this Article V
referred to as "affiliates") are free to render services to others. It is
understood that Directors, officers, employees and shareholders of the Fund are
or may become interested in the Investment Adviser and its affiliates, as
directors, officers, employees, partners and shareholders or otherwise, and that
directors, officers, employees, partners and shareholders of the Investment
Adviser and of its affiliates are or may become similarly interested in the
Fund, and that the Investment Adviser and directors, officers, employees,
partners and shareholders of its affiliates may become interested in the Fund as
shareholders or otherwise.
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ARTICLE VI.
Duration and Termination of this Agreement
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This Agreement shall become effective as of the date first above written
and shall remain in force until July 31, 2000, and thereafter, but only so long
as such continuance specifically is approved at least annually by (i) the Board
of Directors of the Fund, or by the vote of a majority of the outstanding voting
securities of the Fund, and (ii) by the vote of a majority of those Directors
who are not parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Board of Directors or by vote of a majority of the outstanding
voting securities of the Fund, or by the Investment Adviser, on sixty (60) days'
written notice to the other party. This Agreement shall terminate automatically
in the event of its assignment.
ARTICLE VII.
Amendment of this Agreement
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This Agreement may be amended by the parties only if such amendment
specifically is approved by the vote of (i) a majority of the outstanding voting
securities of the Fund, and (ii) a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
ARTICLE VIII.
Definitions of Certain Terms
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The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the
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respective meanings specified in the Investment Company Act and the rules and
regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
ARTICLE IX.
Governing Law
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This Agreement shall be governed by and construed in accordance with the
laws of the State of New York and the applicable provisions of the Investment
Company Act. To the extent that the applicable laws of the State of New York,
or any of the provisions herein, conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
DEBT STRATEGIES FUND III, INC.
By: ______________________________
Authorized Signatory
FUND ASSET MANAGEMENT, L.P.
By: ______________________________
Authorized Signatory
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