INVESTMENT ADVISORY AGREEMENT
February 5, 1992
Xxxxxxxx & Xxxxxxxx Incorporated
000 X. Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
Preferred Income Opportunity Fund Incorporated (the
"Company"), a corporation organized under the laws of the State of Maryland,
herewith confirms its agreement with Xxxxxxxx & Xxxxxxxx Incorporated (the
"Adviser"), a corporation organized under the laws of the State of California,
as follows:
1. Investment Description; Appointment
The Company desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Articles of Incorporation, as the same may from time to time be
amended, and in its Registration Statement as from time to time in effect, and
in such manner and to such extent as may from time to time be approved by the
Board of Directors of the Company. Copies of the Company's Registration
Statement and Articles of Incorporation, as amended, have been or will be
submitted to the Adviser. The Company agrees to provide copies of all amendments
to the Company's Registration Statement and Articles of Incorporation to the
Adviser on an ongoing basis. The Company desires to employ and hereby appoints
the Adviser to act as investment adviser to the Company. The Adviser accepts the
appointment and agrees to furnish the services described herein for the
compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of
Directors of the Company, the Adviser will (a) act in accordance with the
Company's Articles of Incorporation, the Investment Company Act of 1940 (the
"1940 Act") and the Investment Advisers Act of 1940, as the same may from time
to time be amended, (b) manage the Company's portfolio on a discretionary basis
in accordance with its investment objective and policies as stated in the
Company's Registration Statement as from time to time in effect, (c) make
investment decisions and exercise voting rights in respect of portfolio
securities for the Company, (d) place purchase and sale orders on behalf of the
Company and (e) employ professional portfolio managers and securities analysts
to provide research services to the Company. The Adviser is authorized to retain
the services of an economic consultant at the expense of the Fund to provide
such services with respect to the Company as the parties to any agreement may
agree upon. In providing these services, the Adviser will provide investment
research and supervision of the Company's evaluation and, if appropriate, sale
and reinvestment of the Company's assets. In addition, the Adviser will furnish
the Company with whatever statistical information the Company may reasonably
request with respect to the securities that the Company may hold or contemplate
purchasing.
3. Brokerage
In executing transactions for the Company and selecting
brokers or dealers, the Adviser will use its best efforts to seek the best
overall terms available. In assessing the best overall terms available for any
Company transaction, the Adviser will consider all factors it deems relevant
including, but not limited to, breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer and the reasonableness of any commission for the specific transaction
and on a continuing basis. In selecting brokers or dealers to execute any
transaction and in evaluating the best overall terms available, the Adviser may
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to the Company
and/or other accounts over which the Adviser or an affiliate exercises
investment discretion.
4. Information Provided to the Company
The Adviser will use its best efforts to keep the Company
informed of developments materially affecting the Company, and will, on its own
initiative, furnish the Company from time to time with whatever information the
Adviser believes is appropriate for this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services described in paragraphs 2, 3 and 4 above. The Adviser shall not be
liable for any error of judgment or mistake of law or for any act or omission or
any loss suffered by the Company in connection with the matters to which this
Agreement relates, provided that nothing herein shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement ("disabling conduct"). The Company will
indemnify the Adviser against, and hold it 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 disabling conduct by the
Adviser. 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" of the Company nor parties to the proceeding
("disinterested non-party directors"), or (b) an 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 it in connection with the matter
as to which it is seeking indemnification in the manner and to the fullest
extent permissible under the Maryland General Corporation law. 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 a 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.
6. Compensation
(a) In consideration of the services rendered pursuant to this
Agreement, the Company will pay the Adviser after the end of the calendar month
during which the Closing Date (as defined below) occurs and after the end of
each calendar month thereafter a fee for the previous month computed monthly at
the annual rate of .625 of 1.00% on the Company's average monthly net assets up
to $100 million and .50 of 1.00% on the Company's average monthly net assets of
$100 million or more. The fee payable to the Adviser for the period from the
date of the closing of the offering contemplated by the Company's initial
registration statement (the "Closing Date") to the end of the first calendar
month during which the Closing Date occurs shall be prorated according to the
proportion that such period bears to the full monthly period.
(b) Upon any termination of this Agreement before the end of a
month, the fee for such part of that month shall be prorated according to the
proportion that such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to the Adviser, the value of the Company's average
monthly net assets shall be computed at the times and in the manner specified in
the Company's Registration Statement as from time to time in effect.
7. Expenses
The Adviser will bear all expenses in connection with the
performance of its services under this Agreement, including compensation of and
office space for its officers and employees connected with investment and
economic research, trading and investment management and administration of the
Company, as well as the fees of all directors of the Company who are affiliated
with the Adviser or any of its affiliates; provided that the Company shall
reimburse the Adviser for the travel and out-of-pocket expenses or an
appropriate portion thereof of directors, officers and employees of the Adviser
in connection with attendance at meetings of the Board of Directors of the Fund
or any committee thereof. The Company will bear all other expenses to be
incurred in its operation other than those that other parties have agreed to
bear, including: organizational expenses; taxes, interest, brokerage costs and
commissions and stock exchange fees; fees of directors of the Company who are
not officers, directors or employees of the Adviser; Securities and Exchange
Commission fees; state Blue Sky qualification fees; charges of the custodian,
any subcustodians and transfer and dividend-paying agent; expenses in connection
with the Company's Dividend Reinvestment and Cash Purchase Plan; insurance
premiums; outside auditing and legal expenses; costs of maintenance of the
Company's existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of printing stock
certificates; costs of shareholders' reports and meetings of the shareholders of
the Company and of the officers or Board of Directors of the Company; membership
fees in trade associations; stock exchange listing fees and expenses; expenses
in connection with auctions of shares of auction rate preferred stock proposed
to be issued by the Company; litigation and other extraordinary or non-recurring
expenses.
8. Services to Other Companies or Accounts
The Company understands that the Adviser now acts, will
continue to act or may in the future act, as investment adviser to fiduciary and
other managed accounts or as investment adviser to one or more other investment
companies, and the Company has no objection to the Adviser so acting, provided
that whenever the Company and one or more other accounts or investment companies
advised by the Adviser have available funds for investment, investments suitable
and appropriate for each will be allocated in accordance with procedures
believed by the Adviser to be equitable to each entity. Similarly, opportunities
to sell securities will be allocated in an equitable manner. The Company
recognizes that in some cases this procedure may adversely affect the size of
the position obtained for or disposed of by the Company. In addition, the
Company understands that the persons employed by the Adviser to assist in the
performance of the Adviser's duties hereunder will not devote their full time to
such service and nothing contained herein shall be deemed to limit or restrict
the right of the Adviser or any affiliate of the Adviser to engage in and devote
time and attention to other business or to render services of whatever kind or
nature.
9. Term of Agreement
This Agreement shall become effective as of the date the
Company's Registration Statement is declared effective by the Securities and
Exchange Commission and shall continue for an initial two-year term and shall
continue thereafter so long as such continuance is specifically approved at
least annually by (i) the Board of Directors of the Company or (ii) a vote of a
"majority" (as defined in the 0000 Xxx) of the Company's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Directors who are not "interested persons" (as defined
in the 0000 Xxx) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable, without penalty, on 60 days' written notice, by the Board of
Directors of the Company or by vote of holders of a majority of the Company's
shares, or upon 60 days' written notice, by the Adviser. This Agreement will
also terminate automatically in the event of its assignment (as defined in the
1940 Act).
10. Entire Agreement
This Agreement constitutes the entire agreement between the
parties hereto.
11. Governing Law
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York without giving effect to
the conflicts of laws principles thereof.
If the foregoing accurately sets forth our agreement, kindly
indicate your acceptance hereof by signing and returning the enclosed copy
thereof.
Very truly yours,
PREFERRED INCOME OPPORTUNITY FUND
INCORPORATED
By: Xxxxxx X. Xxxxxxxx
Title: Vice President
Accepted:
XXXXXXXX & XXXXXXXX INCORPORATED
By: Xxxxxx X. Xxxxxxxx
Title: President
