Exhibit (G)(1)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT dated June 18, 2002 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 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 it 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 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 until May 31, 2004. This Agreement shall continue
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).
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: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Treasurer
HYPERION CAPITAL MANAGEMENT, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Chief Operating Officer