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INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of the ____ day of _______, 1999 by and between THE
S&P 500(R) PROTECTED EQUITY FUND, INC., a Maryland corporation (the "Fund"), and
XXXXXXX XXXXX ASSET MANAGEMENT, L.P., a Delaware limited partnership (the
"Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as a closed-end,
non-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 promises and the covenants
hereinafter contained, the Fund and the Investment Adviser hereby agree as
follows:
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ARTICLE I
Duties of the Investment Adviser
The Fund hereby employs the Investment Adviser to act as a manager and
investment adviser of the Fund and to furnish, or arrange for its affiliates to
furnish, the management and 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) Management and Administrative Services. The Investment Adviser
shall perform, or arrange for its affiliates to perform, the management and
administrative services necessary for the operation of the Fund, including
administering stockholder accounts and handling stockholder relations. The
Investment Adviser shall provide the Fund with office space, facilities,
equipment and necessary personnel and such other services as the Investment
Adviser, subject to review by the Board of Directors, from time to time shall
determine to be necessary or useful to perform its obligations under this
Agreement. The Investment Adviser, also on behalf of the Fund, shall conduct
relations with custodians, depositories, transfer agents, pricing agents,
dividend disbursing agents, other stockholder servicing agents, accountants,
attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers,
banks and such other persons in any such other capacity deemed to be necessary
or desirable. The Investment Adviser generally shall monitor the Fund's
compliance with investment policies and restrictions as set forth in
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filings made by the Fund under the Federal securities laws. The Investment
Adviser shall make reports to the Board of Directors of its performance of
obligations hereunder and furnish advice and recommendations with respect to
such other aspects of the business and affairs of the Fund as it shall determine
to be desirable.
(b) Investment Advisory Services. The Investment Adviser shall provide,
or 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 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
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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 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.
ARTICLE II
Allocation of Charges and Expenses
(a) The Investment Adviser. The Investment Adviser shall provide the
staff and 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. Except as otherwise provided in subsection (b)
hereof, the Investment
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Adviser also assumes, and shall pay or cause to be paid, all ordinary operating
expenses of the Fund including, without limitation: expenses for legal and
auditing services, costs of printing proxies, stock certificates, stockholder
reports and prospectuses, charges of the custodian, any sub-custodian and
transfer agent, Securities and Exchange Commission fees, expenses of registering
the shares of the Fund under Federal, state and foreign laws, insurance,
accounting and pricing costs (including the calculation of the net asset value).
(b) The Fund. The Fund assumes, and shall pay or cause to be paid, all
taxes, expenses of portfolio transactions, interest, brokerage costs, fees and
actual out-of-pocket expenses of Directors who are not affiliated persons of the
Investment Adviser including their expenses for legal services, and litigation
and other extraordinary or non-recurring expenses, including expenses that may
be incurred in liquidating portfolio investments and in terminating the Fund's
existence pursuant to the Articles of Incorporation of the Fund.
ARTICLE III
Compensation of the Investment Adviser
(a) Investment Advisory Fee. For the services rendered, the facilities
furnished and the expenses assumed by the Investment Adviser, the Fund shall pay
to the Investment Adviser at the end of each calendar quarter a fee in arrears
based upon the average weekly value of the net assets of the Fund at the annual
rate of 1.00% of the average weekly net assets of the Fund (i.e., the average
weekly value of the total assets of the Fund, minus the sum of accrued
liabilities of the Fund), commencing on the day following effectiveness hereof.
For purposes of this calculation, average weekly net assets are determined at
the end of each calendar quarter on the basis of the average net assets of the
Fund for each week during the calendar quarter. The assets
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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.
The Investment Adviser will receive its quarterly fee from the common
stock dividends on the Fund's portfolio and other available cash or cash
equivalents (together, "Available Assets") remaining after payment of expenses
borne by the Fund pursuant to subsection (b) of Article II. To the extent that
Available Assets are not sufficient to pay all of the fee due to the Investment
Adviser in a given calendar quarter, the Investment Adviser will defer
collecting the portion of the fee not covered by such Available Assets (the
"Deferred Advisory Fee") until the conclusion of the next calendar quarter. To
the extent that there are additional Available Assets after accruing for the
then current fee, such additional Available Assets will be applied to the
payment of the Deferred Advisory Fee, and any unpaid Deferred Advisory Fee
balance will be carried forward from quarter to quarter until paid. To the
extent that Available Assets are not sufficient to pay the then current fee owed
to the Investment Adviser, such unpaid fee will be added to the Deferred
Advisory Fee balance, if any. At the termination of the Fund's existence
pursuant to the Articles of Incorporation of the Fund, any Deferred Advisory Fee
will only be payable to the extent the Fund is able to return at least $10.00
per share to stockholders. If payment of any portion of the Deferred Advisory
Fee would otherwise result in a return to stockholders at the termination of the
Fund's existence of less than $10.00 per share (as adjusted for any early return
of capital), that portion of the Deferred Advisory Fee will be waived. The Fund
will not pay the Investment Adviser any interest on the Deferred Advisory Fee.
If this Agreement becomes effective subsequent to the first day of a
calendar quarter or shall terminate before the last day of a calendar quarter,
compensation for that part of the calendar quarter this Agreement is in effect
shall be prorated in a manner consistent with the
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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 calendar quarter 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 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, 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, if any, as such
limitations may be raised or lowered from time to time, the Investment Adviser
shall reduce its management and 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 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 annual payment of the fee due to the Investment Adviser and the amount of
any such reimbursement will not be added to the Deferred Advisory Fee discussed
in subsection (a) hereof. Should two or more such expense limitations be
applicable as at the end of the last
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business day of the fiscal year, that expense limitation which results in the
largest reduction in the Investment Adviser's fee shall be applicable.
ARTICLE IV
Sub-Advisory Agreement
The Investment Adviser may enter into a separate sub-advisory agreement
with Xxxxxxx Xxxxx Asset Management U.K. Limited ("MLAM U.K.") in which the
Investment Adviser may contract for sub-advisory services and pay MLAM U.K.
compensation for its services out of the compensation received hereunder
pursuant to Article III. Such sub-advisory agreement will be coterminous with
this Agreement.
ARTICLE V
Limitation of Liability of the Investment Adviser
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 V, 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 VI
Activities of the Investment Adviser
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
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Investment Adviser (for purposes of this Article VI 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 stockholders or otherwise, and that directors, officers, employees,
partners and stockholders 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 stockholders or otherwise.
ARTICLE VII
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first above
written and shall remain in force until two years after the date first above
written 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.
To the extent that there is any Deferred Advisory Fee balance at the
termination of this Agreement, pursuant to this Article VII such Deferred
Advisory Fee will be paid pursuant to the provisions of subsection (a) of
Article III.
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ARTICLE VIII
Amendment of this Agreement
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 IX
Definitions of Certain Terms
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 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 X
Governing Law
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.
THE S&P 500(R) PROTECTED EQUITY FUND, INC.
By: __________________________________________
Authorized Signatory
XXXXXXX XXXXX ASSET MANAGEMENT, L.P.
By: __________________________________________
Authorized Signatory
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