INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of June 29, 2006, by and between
Highland Capital Management, L.P., a Delaware limited
partnership (the Adviser), and Highland Credit Strategies
Fund, a Delaware statutory trust (the Trust).
WHEREAS, the Trust 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
WHEREAS, the Adviser 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:
Appointment of Adviser.
The Trust hereby appoints the Adviser to act as investment
adviser to the Trust for the period and on the terms herein
set forth. The Adviser accepts such appointment, and
agrees to render the services herein set forth, for the
compensation herein provided.
Duties of Adviser.
The Adviser, at its own expense, shall furnish the following
services and facilities to the Trust:
Investment Program. The Adviser shall (i) furnish
continuously an investment program for the Trust,
(ii) determine (subject to the overall supervision and review
of the Trusts Board of Trustees) the investments to be
purchased, held, sold or exchanged by the Trust and the
portion, if any, of the assets of the Trust to be held
uninvested, (iii) make changes in the investments of the
Trust and (iv) vote, exercise consents and exercise all other
rights pertaining to such investments. The Adviser also
shall manage, supervise and conduct the other affairs and
business of the Trust and matters incidental thereto
pursuant to a separate administration agreement with the
Trust, subject always to the control of the Trusts Board of
Trustees and to the provisions of the organizational
documents of the Trust, the Registration Statement of the
Trust and its shares of beneficial interest (Shares),
including the Trusts Prospectus 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 Adviser shall have the authority to engage
one or more subadvisers in connection with the portfolio
management of the Trust, which subadvisers may be
affiliates of the Adviser; provided, however, that the
Adviser shall remain responsible to the Trust with respect
to its duties and obligations set forth in this Agreement.
Portfolio Transactions. The Adviser shall place all orders
for the purchase and sale of portfolio securities for the
account of the Trust with brokers or dealers selected by the
Adviser, although the Trust will pay the actual brokerage
commissions on portfolio transactions in accordance with
Section 3(d).
In placing portfolio transactions for the Trust, it is
recognized that the Adviser will give primary consideration
to securing the most favorable price and efficient
execution. Consistent with this policy, the Adviser 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 Adviser may be a party. It is understood that neither
the Trust nor the Adviser has adopted a formula for
allocation of the Trusts investment transaction business. It
is also understood that it is desirable for the Trust that the
Adviser 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 Trust 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 Adviser is
authorized to place orders for the purchase and sale of
securities for the Trust with such brokers, subject to review
by the Trusts Board of Trustees 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 Adviser in connection with its
services to other clients.
On occasions when the Adviser deems the purchase or sale
of a security to be in the best interest of the Trust as well as
other clients, the Adviser, 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 Adviser in the manner it considers to be the
most equitable and consistent with its fiduciary obligations
to the Trust and to such other clients.
Allocation of Expenses.
Except for the services and facilities to be provided by the
Adviser pursuant to a separate administration agreement
with the Trust, the Trust assumes and shall pay all expenses
for all other Trust operations and activities and shall
reimburse the Adviser for any such expenses incurred by
the Adviser. Unless the Prospectus or Statement of
Additional Information of the Trust provides otherwise, the
expenses to be borne by the Trust shall include, without
limitation:
all expenses of organizing the Trust;
the charges and expenses of any registrar, stock transfer
and dividend disbursing agent, custodian or depository
appointed by the Trust for the safekeeping of its cash,
portfolio securities and other property and pricing services
provided to the Trust (other than those utilized by the
Adviser in providing the services described in Section 2);
the charges and expenses of bookkeeping, accounting and
auditors;
brokerage commissions and other costs incurred in
connection with transactions in the portfolio securities of
the Trust, 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;
taxes, including issuance and transfer taxes, and trust
registration, filing or other fees payable by the Trust to
federal, state or other governmental agencies;
expenses, including the cost of printing certificates, relating
to the issuance of Shares of the Trust;
expenses involved in registering and maintaining
registrations of the Trust and of its Shares with the
Securities and Exchange Commission (SEC) and other
jurisdictions, including reimbursement of actual expenses
incurred by the Adviser or others in performing such
functions for the Trust;
expenses of shareholders and trustees meetings, including
meetings of committees, and of preparing, printing and
distributing proxy statements, quarterly reports, if any,
semiannual reports, annual reports and other
communications to existing shareholders;
expenses of preparing and printing prospectuses and
marketing materials;
compensation and expenses of trustees who are not
affiliated with the Adviser;
charges and expenses of legal counsel in connection with
matters relating to the Trust, including, without limitation,
legal services rendered in connection with the Trust and
financial structure and relations with its shareholders,
issuance of Shares of the Trust and registration and
qualification of Shares under federal, state and other laws;
the cost and expense of maintaining the books and records
of the Trust, including general ledger accounting;
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 Adviser;
expenses incurred in obtaining and maintaining any surety
bond or similar coverage with respect to securities of the
Trust;
interest payable on Trust borrowings;
such other non recurring expenses of the Trust as may
arise, including expenses of actions, suits or proceedings to
which the Trust is a party and expenses resulting from the
legal obligation that the Trust may have to provide
indemnity with respect thereto;
expenses and fees reasonably incidental to any of the
foregoing specifically identified expenses;
listing fees and expenses; and
all other expenses permitted by the Prospectus and
Statement of Additional Information of the Trust as being
paid by the Trust.
Advisory Fee.
In return for its advisory services, the Adviser will receive
an annual fee, payable monthly, in an amount equal to
1.00% of the average weekly value of the Trusts Managed
Assets (the Advisory Fee). The Trusts Managed Assets
will be an amount equal to the total assets of the Trust,
including any form of investment leverage, minus all
accrued expenses incurred in the normal course of
operations, but not excluding any liabilities or obligations
attributable to investment leverage obtained through (i)
indebtedness of any type (including, without limitation,
borrowing through a credit facility or the issuance of debt
securities), (ii) the issuance of preferred stock or other
similar preference securities, (iii) the reinvestment of
collateral received for securities loaned in accordance with
the Trusts investment objectives and policies, and/or (iv)
any other means. The accrued fees will be payable
monthly as promptly as possible after the end of each
month during which this Agreement is in effect. The
Adviser 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.
Agency Cross Transactions.
From time to time, the Adviser or brokers or dealers
affiliated with it may find themselves in a position to buy
for certain of their brokerage clients (each an Account)
securities that the Advisers investment advisory clients
wish to sell, and to sell for certain of their brokerage clients
securities that advisory clients wish to buy. Where one of
the parties is an advisory client, the Adviser or the affiliated
broker or dealer cannot participate in this type of
transaction (known as a cross transaction) on behalf of an
advisory client and retain commissions from one or both
parties to the transaction without the advisory clients
consent. This is because in a situation where the Adviser is
making the investment decision (as opposed to a brokerage
client who makes his own investment decisions), and the
Adviser or an affiliate is receiving commissions from both
sides of the transaction, there is a potential conflicting
division of loyalties and responsibilities on the Advisers
part regarding the advisory client. The SEC has adopted a
rule under the Investment Advisers Act of 1940, as
amended, that permits the Adviser or its affiliates to
participate on behalf of an Account in agency cross
transactions if the advisory client has given written consent
in advance. By execution of this Agreement, the Trust
authorizes the Adviser or its affiliates to participate in
agency cross transactions involving an Account. The Trust
may revoke its consent at any time by written notice to the
Adviser.
Indemnification.
The Trust hereby agrees to indemnify the Adviser and each
of the Advisers partners, officers, employees, and agents
(including any individual who serves at the Advisers
request as director, officer, partner, trustee or the like of
another entity) and controlling persons (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 state 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 such
Indemnitee may be or may have been involved as a party or
otherwise or with which such Indemnitee may be or may
have been threatened, while acting in any capacity set forth
above in this paragraph or thereafter by reason of such
Indemnitees having acted in any such capacity, except with
respect to any matter as to which such Indemnitee shall
have been adjudicated not to have acted in good faith in the
reasonable belief that such Indemnitees action was in the
best interest of the Trust and furthermore, in the case of any
criminal proceeding, so long as such Indemnitee 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 Trust or
its shareholders or any expense of such Indemnitee arising
by reason of (i) willful misfeasance, (ii) bad faith, (iii)
gross negligence (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 that such settlement or compromise is in
the best interests of the Trust and that such Indemnitee
appears to have acted in good faith in the reasonable belief
that his action was in the best interests of the Trust and did
not involve Disabling Conduct by such Indemnitee and (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 a majority of the full Board of the Trust.
Notwithstanding the foregoing, the Trust shall not be
obligated to provide any such indemnification to the extent
such provision would waive any right that the Trust cannot
lawfully waive.
The Trust shall make advance payments in connection with
the expenses of defending any action with respect to which
indemnification might be sought hereunder if the Trust
receives a written affirmation of the Indemnitees good faith
belief that the standard of conduct necessary for
indemnification has been met and a written undertaking to
reimburse the Trust unless it is subsequently determined
that such Indemnitee is entitled to such indemnification and
if the Trustees of the Trust determine that the facts then
known to them would not preclude indemnification. In
addition, at least one of the following conditions must be
met: (1) the Indemnitee shall provide adequate security for
such Indemnitees undertaking, (2) the Trust shall be
insured against losses arising by reason of any lawful
advances, or (3) a majority of a quorum of Trustees of the
Trust who are neither interested persons of the Trust (as
defined in Section 2(a)(19) of the 0000 Xxx) nor parties to
the proceeding (Disinterested Non Party Trustees) or 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.
All determinations with respect to indemnification
hereunder shall be made (1) by a final decision on the
merits by a court or other body of competent jurisdiction
before whom the proceeding was brought that such
Indemnitee is not liable or is not liable by reason of
Disabling Conduct or, (2) in the absence of such a decision,
by (i) a majority vote of a quorum of the Disinterested
Non Party Trustees of the Trust, 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.
Each Indemnitee shall, in the performance of its duties, be
fully and completely justified and protected with regard to
any act or any failure to act resulting from reliance in good
faith upon the books of account or other records of the
Trust, upon an opinion of counsel, or upon reports made to
the Trust by any of the Trusts officers or employees or by
any advisor, administrator, manager, distributor, selected
dealer, accountant, appraiser or other expert or consultant
selected with reasonable care by the Trustees, officers or
employees of the Trust, regardless of whether such counsel
or other person may also be a Trustee.
The rights accruing to any Indemnitee under these
provisions shall not exclude any other right to which he
may be lawfully entitled.
Relations with Trust.
Subject to and in accordance with the organizational
documents of the Adviser and the Trust, as well as their
policies and procedures and codes of ethics, it is
understood that Trustees, officers, agents and shareholders
of the Trust are or may be interested in the Adviser (or any
successor thereof) as directors, officers or otherwise, that
partners, officers and agents of the Adviser (or any
successor thereof) are or may be interested in the Trust as
Trustees, officers, agents, shareholders or otherwise, and
that the Adviser (or any such successor thereof) is or may
be interested in the Trust as a shareholder or otherwise.
Liability of Adviser.
The Adviser shall not be liable to the Trust for any error of
judgment or mistake of law or for any loss suffered by the
Trust in connection with the matters to which this
Agreement relates; provided, however, that no provision of
this Agreement shall be deemed to protect the Adviser
against any liability to the Trust or its shareholders to
which it might otherwise be subject by reason of any
Disabling Conduct nor shall any provision hereof be
deemed to protect any trustee or officer of the Trust against
any such liability to which he might otherwise be subject
by reason of any Disabling Conduct.
Duration and Termination of this Agreement.
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 Trusts Board of Trustees, including
approval by a vote of a majority of the Trustees who are
not interested persons (as defined in the 0000 Xxx) of the
Adviser or the Trust, 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 (as defined in the 0000 Xxx) of the Trust. Unless
terminated as herein provided, this Agreement shall remain
in full force and effect until the date that 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 paragraph 9(c),
so long as such continuance is approved at least annually
(a) by either the Trusts Board of Trustees or by a vote of a
majority of the outstanding voting securities (as defined in
the 0000 Xxx) of the Trust and (b) in either event, by the
vote of a majority of the Trustees of the Trust 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.
Amendment. No provision of this Agreement may be
amended, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against
which enforcement of the amendment, waiver, discharge or
termination is sought. Any amendment of this Agreement
shall be subject to the 1940 Act including the interpretation
thereof that amendments that do not increase the
compensation of the Adviser or otherwise fundamentally
alter the relationship of the Trust with the Adviser do not
require shareholder approval if approved by the requisite
majority of the Trusts Trustees who are not interested
persons (as defined in the 0000 Xxx) of the Trust.
Termination. This Agreement may be terminated at any
time, without payment of any penalty, by vote of the Trusts
Board of Trustees, or by a vote of a majority of the
outstanding voting securities (as defined in the 0000 Xxx)
of the Trust, or by the Adviser, in each case on not more
than 60 days nor less than 30 days prior written notice to
the other party.
Automatic Termination. This Agreement shall
automatically and immediately terminate in the event of its
assignment (as defined in the 1940 Act).
Services Not Exclusive.
Nothing in this Agreement shall prevent the Adviser or any
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 Adviser or any
of its 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 Adviser will undertake no
activities that, in its judgment, will adversely affect the
performance of its obligations under this Agreement. In
addition, the parties may enter into other agreements
pursuant to which the Adviser provides administrative or
other, non investment advisory services to the Trust, and
the Adviser may be compensated for such other services.
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 Two
Galleria Tower, 00000 Xxxx Xxxx, Xxxxx 000, Xxxxxx, Xxxxx
00000.
Governing Law; Severability; 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.
Use of the Name Highland.
The Adviser has consented to the use by the Trust
of the name or identifying word Highland in the name of
the Trust. Such consent is conditioned upon the
employment of the Adviser as the investment adviser to the
Trust. The name or identifying word Highland may be
used from time to time in other connections and for other
purposes by the Adviser and any of its affiliates. The
Adviser may require the Trust to cease using Highland in
the name of the Trust if the Trust ceases to employ, for any
reason, the Adviser, any successor thereto or any affiliate
thereof as investment adviser of the Trust.
Miscellaneous.
The Adviser agrees to advise the Trust of any change of its
membership (which shall mean its general partner) within a
reasonable time after such change. If the Adviser enters
into a definitive agreement that would result in a change of
control (within the meaning of the 0000 Xxx) of the
Adviser, it agrees to give the Trust the lesser of 60 days
written notice and such notice as is reasonably practicable
before consummating the transaction.
Where the effect of a requirement of the 1940 Act reflected
in or contemplated by any provisions of this Agreement is
altered by a rule, regulation or order of the SEC, whether of
special or general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or
order.
Subject to the Trusts Agreement and Declaration of Trust,
it is expressly agreed that the obligations of the Trust under
this Agreement shall not be binding upon any past, present
or future trustee, nominee, officer, shareholder, employee
or agent of the Trust individually, and shall only be binding
upon the Trust and its assets, as provided in the Trusts
Agreement and Declaration of Trust, a copy of which is on
file at the office of the Secretary of the State of Delaware
and at the principal offices of the Trust. This Agreement
was executed on behalf of the Trust by an officer of the
Trust in such capacity, and shall not be deemed to have
been executed by such officer individually or to impose any
liability on such officer, or the shareholders of the Trust,
personally, but shall bind only the assets and property of
the Trust.
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:
Name: /s/Xxxx Xxxxx
Date: June 29, 2006
HIGHLAND CREDIT STRATEGIES FUND
By:
Name: /s/Xxx Xxxxxxxxx
Date: June 29, 2006
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