Exhibit (G)(2)
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT, dated June 18, 2002, between Hyperion Capital Management, Inc.
(the "Adviser"), a Delaware corporation, and Lend Lease Hyperion Capital
Advisors, L.L.C. (the "Sub-Adviser"), a Delaware limited liability company.
WHEREAS, the Adviser has entered into an Investment Advisory Agreement (the
"Advisory Agreement") of even date herewith with The Hyperion Strategic Mortgage
Income 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 commercial mortgage-backed securities ("CMBS")
and to provide investment research and advice with respect to, supervise and
arrange the purchase of CMBS for and the sale of CMBS held in the investment
portfolio of the Fund (the CMBS 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 CMBS 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
CMBS; and (iii) arrange, subject to the provisions of paragraph 3
hereof, for the purchase and sale of CMBS 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 members 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 CMBS. The
Sub-Adviser shall invest that portion of the Fund's assets designated
by the Adviser for CMBS 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
CMBS. If the Adviser determines to increase such amount or percentage,
the Sub-Adviser shall invest such additional funds in CMBS 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 CMBS 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 CMBS 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 CMBS. 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 as attached on Schedule A 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 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 until May 31, 2004. This Agreement shall
continue 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 and will
terminate upon assignment.
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.
HYPERION CAPITAL MANAGEMENT, INC.
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------
Xxxxxx X. Xxxxxxx
Chief Operating Officer
LEND LEASE HYPERION CAPITAL ADVISORS, L.L.C.
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------
Xxxxxx X. Xxxxxxx
Controller
SCHEDULE A
For CMBS rated: Annual fee:
AAA, AA 0.13%
A 0.18%
BBB 0.25%
BB 0.50%
B 0.75%
Unrated 1.00%
