INVESTMENT ADVISORY AGREEMENT
Exhibit (g)
INVESTMENT ADVISORY AGREEMENT made as of , 2007, by and between Highland Capital
Management, L.P., a Delaware limited partnership (the “Manager”), and Highland Floating
Rate Fund, a Delaware statutory trust (the “Fund”).
WHEREAS, the Fund is engaged in business as a closed-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the “1940 Act”), and
periodically offers to repurchase its shares in conformity with the provisions of Rule 23c-3 under
the 1940 Act, which funds are generally referred to as “interval funds”; and
WHEREAS the Manager is engaged principally in the business of rendering investment management
services and is registered as an investment adviser under the Investment Advisers Act of 1940, as
amended;
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties hereto as follows:
SECTION 1. Appointment of Manager.
The Fund hereby appoints the Manager to act as manager and investment adviser to the Fund for
the period and on the terms herein set forth. The Manager accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
SECTION 2. Duties of Manager.
The Manager, at its own expense, shall furnish the following services and facilities to the
Fund:
(a) Investment Program. The Manager shall (i) furnish continuously an
investment program for the Fund, (ii) determine (subject to the overall supervision and
review of the Board of Trustees of the Fund (the “Board”)) what investments shall be
purchased, held, sold or exchanged by the Fund and what portion, if any, of the assets of
the Fund shall be held uninvested, and (iii) make changes in the investments of the Fund.
The Manager also shall manage, supervise and conduct the other affairs and business of the
Fund and matters incidental thereto, subject always to the control of the Board, and to the
provisions of the organizational documents of the Fund, the Registration Statement of the
Fund and its securities, including its Prospectuses and Statement of Additional Information,
and the 1940 Act, in each case as from time to time amended and in effect. Subject to the
foregoing, the Manager shall have the authority to engage one or more sub-advisers in
connection with the management of the Fund, which sub-advisers may be affiliates of the
Manager.
(b) Office Space and Facilities. The Manager shall furnish the Fund office
space in the offices of the Manager, or in such other place or places as may be agreed upon
from time to time, and all necessary office facilities, simple business equipment, supplies,
utilities and telephone service for managing the affairs and investments of the Fund.
(c) Administrative Services. The Manager shall supervise the business and
affairs of the Fund and shall provide such services and facilities as may be required for
the effective administration of the Fund as are not provided by employees or other agents
engaged by the Fund, provided that the Manager shall not have any obligation to provide
under this Agreement
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any such services which are the subject of a separate agreement or arrangement between
the Fund and the Manager, or an affiliate of the Manager, or any third-party administrator.
(d) Fidelity Bond. The Manager shall arrange for providing and maintaining a
bond issued by a reputable insurance company authorized to do business in the place where
the bond is issued against larceny and embezzlement covering each officer and employee of
the Fund who may singly or jointly with others have access to funds or securities of the
Fund, with direct or indirect authority to draw upon such funds or to direct generally the
disposition of such funds. The bond shall be in such reasonable amount as a majority of the
trustees who are not “interested persons” of the Fund, as defined in the 1940 Act, shall
determine, with due consideration given to the aggregate assets of the Fund to which any
such officer or employee may have access. The premium for the bond shall be payable by the
Fund in accordance with Section 3(m).
(e) Portfolio Transactions. The Manager shall place all orders for the
purchase and sale of portfolio securities for the account of the Fund with brokers or
dealers selected by the Manager, although the Fund will pay the actual brokerage commissions
on portfolio transactions in accordance with Section 3(d).
In placing portfolio transactions for the Fund, it is recognized that the Manager will give
primary consideration to securing the most favorable price and efficient execution. Consistent
with this policy, the Manager may consider the financial responsibility, research and investment
information and other services provided by brokers or dealers who may effect or be a party to any
such transaction or other transactions to which other clients of the Manager may be a party. It is
understood that neither the Fund nor the Manager has adopted a formula for allocation of the Fund’s
investment transaction business. It is also understood that it is desirable for the Fund that the
Manager have access to supplemental investment and market research and security and economic
analysis provided by brokers who may execute brokerage transactions at a higher cost to the Fund
than would otherwise result when allocating brokerage transactions to other brokers on the basis of
seeking the most favorable price and efficient execution. Therefore, the Manager is authorized to
place orders for the purchase and sale of securities for the Fund with such brokers, subject to
review by the Board from time to time with respect to the extent and continuation of this practice.
It is understood that the services provided by such brokers may be useful or beneficial to the
Manager in connection with its services to other clients.
On occasions when the Manager deems the purchase or sale of a security to be in the best
interest of the Fund as well as other clients, the Manager, to the extent permitted by applicable
laws and regulations, may, but shall be under no obligation to, aggregate the securities to be so
sold or purchased in order to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so purchased or sold, as well as
the expenses incurred in the transaction, will be made by the Manager in the manner it considers to
be the most equitable and consistent with its fiduciary obligations to the Fund and to such other
clients.
SECTION 3. Allocation of Expense.
Except for the services and facilities to be provided by the Manager as set forth in
Section 2 above, the Fund assumes and shall pay all expenses for all other Fund operations
and activities and shall reimburse the Manager for any such expenses incurred by the Manager.
Unless the Prospectuses or Statement of Additional Information of the Fund provides otherwise, the
expenses to be borne by the Fund shall include, without limitation:
(a) all expenses of organizing the Fund;
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(b) the charges and expenses of (i) any registrar, stock transfer or dividend
disbursing agent, shareholder servicing agent, custodian or depository appointed by the Fund
for the safekeeping of its cash, portfolio securities and other property, including the
costs of servicing shareholder investment accounts and bookkeeping, accounting and pricing
services, provided to the Fund (other than those utilized by the Manager in providing the
services described in Section 2), (ii) any agent engaged for the purposes of
conducting auctions with respect to the Fund’s taxable auction rate preferred stock, if any
shall be issued, (iii) any institution serving as trustee with respect to the Fund’s Senior
Extendible Notes, and (iv) fees of any stock exchange or any rating agency responsible for
rating outstanding securities of the Fund;
(c) the charges and expenses of bookkeeping, accounting and auditors;
(d) brokerage commissions and other costs incurred in connection with transactions in
the portfolio securities of the Fund, including any portion of such commissions attributable
to brokerage and research services as defined in Section 28(e) of the Securities Exchange
Act of 1934;
(e) taxes, including issuance and transfer taxes, and registration, filing or other
fees payable by the Fund to federal, state or other governmental agencies;
(f) expenses, including the cost of printing certificates, relating to the issuance of
shares of the Fund;
(g) expenses involved in registering and maintaining registrations of the Fund and of
its securities with the Securities and Exchange Commission and various states and other
jurisdictions, including reimbursement of actual expenses incurred by the Manager or others
in performing such functions for the Fund, and including compensation of persons who are
employees of the Manager, in proportion to the relative time spent on such matters;
(h) expenses of shareholders’ and trustees’ meetings, including meetings of committees,
and of preparing, printing and mailing proxy statements, quarterly reports, semi-annual
reports, annual reports and other communications to existing shareholders;
(i) expenses of preparing and printing prospectuses and marketing materials;
(j) compensation and expenses of the Fund’s trustees who are not affiliated with the
Manager;
(k) charges and expenses of legal counsel in connection with matters relating to the
Fund, including, without limitation, legal services rendered in connection with the Fund’s
trust and financial structure and relations with its shareholders, issuance of shares of the
Fund and registration and qualification of shares under federal, state and other laws;
(l) the cost and expense of maintaining the books and records of the Fund, including
general ledger accounting;
(m) 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 Manager;
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(n) expenses incurred in obtaining and maintaining any surety bond or similar coverage
with respect to securities of the Fund;
(o) interest payable on Fund borrowings;
(p) such other non-recurring expenses of the Fund as may arise, including expenses of
actions, suits or proceedings to which the Fund is a party and expenses resulting from the
legal obligation which the Fund may have to provide indemnity with respect thereto;
(q) expenses and fees reasonably incidental to any of the foregoing specifically
identified expenses; and
(r) all other expenses permitted by the Prospectuses and Statement of Additional
Information of the Fund as being paid by the Fund.
SECTION 4. Investment Advisory Fee.
In return for its investment advisory services, the Fund will pay the Manager a monthly fee,
computed and accrued daily, based on an annual rate of 0.65% of the Average Daily Net Assets of the
Fund for the first one billion dollars ($1,000,000,000), 0.60% of the Average Daily Net Assets of
the Fund for the next one billion dollars ($1,000,000,000), and 0.55% of the Average Daily Net
Assets of the Fund over two billion dollars ($2,000,000,000). The Manager may waive a portion of
its fees. 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 a manner
consistent with the calculation of the fees payable on a monthly basis. Subject to the provisions
of Section 5 below, the accrued fees will be payable monthly as promptly as possible after
the end of each month during which this Agreement is in effect. Operating expenses shall not
include brokerage, interest, taxes, deferred organization expenses and extraordinary expenses, if
any.
SECTION 5. Reimbursements.
The parties agree that they may negotiate from time to time for the Manager to reimburse
certain costs and expenses of the Fund. If such an agreement is in effect, the determination of
whether reimbursement for such costs and expenses is due the Fund from the Manager 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 Fund to the Manager pursuant to Section 4 hereof, and
the amount to be paid by the Manager to the Fund as soon as is practicable at the end of a fiscal
year of the Fund shall be equal to the difference between the aggregate reimbursement due the Fund
from the Manager for that fiscal year and the aggregate offsets made by the Fund against the
aggregate investment advisory fees payable to the Manager pursuant to Section 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 Fund, the costs and expenses incident to the public offering or
private placement of securities of the Fund, including debt securities.
SECTION 6. Relations with the Fund.
Subject to and in accordance with the organizational documents of the Manager and the Fund, as
well as their policies and procedures and codes of ethics, it is understood that trustees,
officers, agents and shareholders of the Fund are or may be interested in the Manager (or any
successor thereof) as directors,
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officers or otherwise, that partners, officers and agents of the Manager (or any successor
thereof) are or may be interested in the Fund as trustees, officers, agents, shareholders or
otherwise, and that the Manager (or any such successor thereof) is or may be interested in the Fund
as a shareholder or otherwise.
SECTION 7. Liability of Manager.
The Manager shall not be liable to the Fund for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matters to which this Agreement relates;
provided, however, that no provision of this Agreement shall be deemed to protect the Manager
against any liability to the Fund 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, nor shall any
provision hereof be deemed to protect any trustee or officer of the Fund against any such liability
to which he might otherwise be subject by reason of any willful misfeasance, bad faith or gross
negligence in the performance of his duties or the reckless disregard of his obligations and
duties.
SECTION 8. Duration and Termination of this Agreement.
(a) Duration. This Agreement shall become effective on the date first set forth
above, such date being the date on which this Agreement has been executed following (1) the
approval of the Board, including approval by a vote of a majority of the trustees who are not
“interested persons” (as defined in the 0000 Xxx) of the Manager or the Fund, cast in person at a
meeting called for the purpose of voting on such approval and (2) the approval by a “vote of a
majority of the outstanding voting securities” of the Fund (as defined in the 1940 Act and the
rules thereunder). 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 full force and
effect, subject to Section 8(c), for successive one-year periods so long as such
continuance is approved at least annually (a) by either the Board or by vote of a majority of the
outstanding voting securities (as defined in the 0000 Xxx) of the Fund and (b) in either event, by
the vote of a majority of the trustees of the Fund who are not parties to this Agreement or
“interested persons” (as defined in the 0000 Xxx) of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(b) Amendment. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought, and no amendment of this
Agreement shall be effective until approved by vote of the holders of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund.
(c) Termination. This Agreement may be terminated at any time, without payment of any
penalty, by vote of the Board or by vote of a majority of the outstanding voting securities (as
defined in the 0000 Xxx) of the Fund or by the Manager, in each case on not more than sixty (60)
days’ nor less than thirty (30) days’ prior written notice to the other party.
(d) Automatic Termination. This Agreement shall automatically and immediately
terminate in the event of its assignment (as defined in the 1940 Act).
SECTION 9. Services Not Exclusive.
The services of the Manager to the Fund hereunder are not to be deemed exclusive, and the
Manager shall be free to render similar services to others so long as its services hereunder are
not impaired thereby. In addition, the parties may enter into agreements pursuant to which the
Manager
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provides administrative or other non-investment advisory services to the Fund, and may be
compensated for such other services.
SECTION 10. Prior Agreements Superseded.
This Agreement supersedes any prior agreement relating to the subject matter hereof between
the parties hereto.
SECTION 11. Notices.
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 000, Xxxxxx, Xxxxx
00000.
SECTION 12. Governing Law; Counterparts.
This Agreement shall be construed in accordance with the laws of the State of Delaware, and
the applicable provisions of the 1940 Act. To the extent that applicable law of the State of
Delaware, or any of the provisions herein, conflict with applicable provisions of the 1940 Act, the
latter shall control. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, but such counterparts shall, together, constitute only one instrument.
SECTION 13. Miscellaneous.
The Manager agrees to advise the Fund of any change of its membership (which shall mean its
general partner) within a reasonable time after such change. If the Manager enters into a
definitive agreement that would result in a change of control (within the meaning of the 0000 Xxx)
of the Manager, it agrees to give the Fund the lesser of sixty days’ notice and such notice as is
reasonably practicable before consummating the transaction.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
date first set forth above.
| HIGHLAND CAPITAL MANAGEMENT, L.P. | ||||||
| By: | STRAND ADVISORS, INC., | |||||
| its general partner | ||||||
| By: | ||||||
| Title: | ||||||
| HIGHLAND FLOATING RATE FUND | ||||||
| By: | ||||||
| Title: | ||||||
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