Exhibit (G)(1)
FORM OF INVESTMENT ADVISORY AGREEMENT
AGREEMENT dated __________________ between The Hyperion Strategic Mortgage
Income Fund, Inc. (the "Fund"), a Maryland corporation, and Hyperion Capital
Management, Inc. (the "Adviser"), a Delaware corporation.
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 Adviser agrees, all as more fully set forth herein, to act as
investment adviser to the Fund with respect to the investment of the Fund's
assets and to supervise and arrange the purchase of securities for and the sale
of securities held in the investment portfolio of the Fund.
2. Duties and obligations of the 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 Fund's Board of Directors, the Adviser shall
(i) act as investment adviser for and supervise and manage the investment and
reinvestment of the Fund's assets and in connection therewith have complete
discretion in purchasing and selling securities and other assets for the Fund
and in voting, exercising consents and exercising all other rights appertaining
to such securities and other assets on behalf of the Fund; (ii) supervise
continuously the investment program of the Fund and the composition of its
investment portfolio; and (iii) arrange, subject to the provisions of paragraph
3 hereof, for the purchase and sale of securities and other assets held in the
investment portfolio of the Fund.
(b) In the performance of its duties under this Agreement, the 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) any other applicable
provision of law; (iii) the Provisions of the Articles of Incorporation and
By-Laws of the Fund, as such documents are amended from time to time; and (iv)
any policies and determinations of the Board of Directors of the Fund.
(c) The Adviser will bear all costs and expenses of its partners 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
Adviser.
(d) The Adviser shall give the Fund the benefit of its best judgment and
effort in rendering services hereunder, but the 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 Adviser or any director,
officer, employee or other affiliate thereof from acting as investment adviser
for any other other person, firm or corporation, or from engaging in any lawful
activity, and shall not in any way limit or restrict the 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 Adviser will undertake no
activities which, in its judgment, will adversely affect the performance of its
obligations under this Agreement.
3. Portfolio Transactions and Brokerage
The Adviser is authorized, for the purchase and sale of the
Fund's portfolio securities, to employ such securities dealers as may, in the
judgment of the 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 Adviser is authorized to
direct the execution of the Fund's portfolio transactions to dealers and brokers
furnishing statistical information or research deemed by the Adviser to be
useful or valuable to the performance of its investment advisory functions for
the Fund.
4. Compensation of the Adviser
(a) The Fund agrees to pay to the Adviser and the Adviser agrees to accept
as full compensation for all services rendered by the Adviser as such, a fee
computed and payable monthly in an amount equal to .65% of the Fund'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
Fund shall mean the average weekly value of the total assets of the Fund, minus
the sum of accrued liabilities (including accrued expenses) of the Fund and any
declared but 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. The average weekly net assets of the
Fund 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.
5. Indemnity
(a) The Fund hereby agrees to indemnify the Adviser and each of the
Adviser's directors, officers, employees and agents (including any individual
who serves at the Adviser's request as director, officer, partner, trustee or
the like of another corporation or other entity) (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 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 Fund or its shareholders 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
that such settlement or compromise is in the best interests of the Fund 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 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 Fund.
(b) The Fund shall make advance payments in connection with the expenses of
defending any action with respect to which indemnification might be sought
hereunder if the Fund 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 Fund unless it is subsequently
determined that he is entitled to such indemnification and if 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 a security for this undertaking, (B) the
Fund shall be insured against losses arising by reason of any lawful advances,
or (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 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) 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
This Agreement shall become effective on the date first set forth above and
shall continue in effect until approved by _____________, the sole shareholder
of the Fund. The Agreement shall continue for two (2) years and 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.
This Agreement may be terminated by the Adviser at any time without penalty
upon giving the Fund sixty days' written notice (which notice may be waived by
the Fund) and may be terminated by the Fund at any time without penalty upon
giving the Adviser sixty days' notice (which notice may be waived by the
Adviser), provided that such termination by the Fund 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 Adviser is a corporation and will notify the Fund
promptly after any change in the ownership of such corporation.
7. 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 earlier of the date
actually received or on the fourth day after the postmark if such notice is
mailed first class postage prepaid.
8. 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.
THE HYPERION STRATEGIC MORTGAGE INCOME FUND, INC.
By: __________________________________________________
HYPERION CAPITAL MANAGEMENT, INC.
By: __________________________________________________
