Exhibit (G)(2)
FORM OF INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT, dated ____________, between Hyperion Capital Management,
Inc. (the "Adviser"), a Delaware corporation, and Lend Lease Hyperion
Capital Advisors, L.L.C. (the "Sub-Adviser"), a Delaware limited liability
company.
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
(the "Advisory Agreement") of even date herewith with The Hyperion
Strategic Mortgage Income Fund, Inc. (the "Fund"), a Maryland corporation;
and
WHEREAS, the Adviser seeks to retain the Sub-Adviser in connection
with the Adviser's duties and obligations under said Investment Advisory
Agreement and the Sub-Adviser desires to provide such assistance.
NOW, THEREFORE, 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 Sub-Adviser agrees, all as more fully set forth herein, to
act as investment adviser to the Adviser with respect to the investment of that
portion of the Fund's assets constituting commercial mortgage-backed securities
("CMBS") and to provide investment research and advice with respect to,
supervise and arrange the purchase of CMBS for and the sale of CMBS held in the
investment portfolio of the Fund (the CMBS portion of the Fund's portfolio is
referred to herein as the "Portfolio").
2. Duties and Obligations of the Sub-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 Adviser, the Sub-Adviser shall (i) act
as investment adviser for and supervise and manage the investment and
reinvestment of the Portfolio only and in connection therewith have
complete discretion in purchasing and selling CMBS for the Fund and in
voting, exercising consents and exercising all other rights appertaining to
such securities on behalf of the Fund; (ii) supervise continuously the
investment program of the Fund and the composition of its investment
portfolio only as such program and portfolio pertain to CMBS; and (iii)
arrange, subject to the provisions of paragraph 3 hereof, for the purchase
and sale of CMBS held in the Portfolio.
(b) In the performance of its duties under this Agreement, the
Sub-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)
the provisions of Subchapter M of the Internal Revenue Code of 1986, as
amended, and of any rules or regulations in force thereunder; (iii) any
other applicable provision of law; (iv) any policies and determinations of
the Board of Directors of the Fund and of the Adviser; and (v) the
provisions of the Articles of Incorporation and By-Laws of the Fund, as
such documents are amended from time to time.
(c) The Sub-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 Sub-Adviser.
(d) The Sub-Adviser shall give the Adviser the benefit of its best
judgment and effort in rendering services hereunder, but the Sub-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 Sub-Adviser or any
director, 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 Sub-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 Sub-Adviser will undertake no activities which,
in its judgment, will adversely affect the performance of its obligations
under this Agreement.
(f) (i) The Adviser will have sole and absolute discretion to
determine the amount or percentage of Fund assets to be invested in CMBS.
The Sub-Adviser shall invest that portion of the Fund's assets designated
by the Adviser for CMBS as soon as practicable or at such later time as the
Adviser may direct after such funds are made available for investment. From
time to time the Adviser may determine to increase or decrease the amount
or percentage of Fund assets to be invested in CMBS. If the Adviser
determines to increase such amount or percentage, the Sub-Adviser shall
invest such additional funds in CMBS as soon as practicable, or at such
later time as the Adviser may direct, after (i) notice of such increase is
given to the Sub-Adviser and (ii) such additional funds are made available
for investment. If, on the other hand, the Adviser determines to decrease
such amount or percentage, the Sub-Adviser shall, as soon as practicable,
or at such later time as the Adviser may direct, after notice of such
decrease is given to the Sub-Adviser, liquidate that portion of the
Portfolio required for the Portfolio to represent the desired amount or
percentage of the Fund assets and cause such liquidated assets to be
available to the Adviser.
(ii) Hedging of positions in the Portfolio, if any, will be
undertaken by the Adviser in consultation with the Sub-Adviser.
(g) The Sub-Adviser shall provide the Adviser with monthly reports
within 5 business days of the end of each month and quarterly reports
within 7 business days of the end of each calendar quarter. Such reports
shall include (i) an itemized print-out of the Portfolio as of the last day
of the period, including the current market value thereof (ii) a statement
of the Sub-Adviser's advice concerning the Fund's investments in CMBS in
light of the objectives of the Fund and the then current market conditions,
(iii) a print-out of the performance of the Portfolio relative to a
mutually agreed upon CMBS securities index, and (iv) such other information
as the Adviser may from time to time reasonably request.
3. Portfolio Transactions and Brokerage
The Sub-Adviser is authorized, for the purchase and sale of the
securities in the Portfolio, to employ such securities dealers as may, in
the judgment of the Sub-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
Sub-Adviser is authorized to direct the execution of Portfolio transactions
to dealers and brokers furnishing statistical information or research
deemed by the Sub-Adviser to be useful or valuable to the performance of
its investment advisory functions for the Portfolio. In addition, the
Sub-Adviser may give proper instructions to the Fund's custodian in
connection with the purchase or sale of CMBS. The Adviser, upon the
Sub-Adviser's request, shall confirm such authority to the Custodian.
4. Compensation of the Sub-Adviser
(a) The Adviser agrees to pay to the Sub-Adviser and the Sub-Adviser
agrees to accept as full compensation for all services rendered by the
Sub-Adviser as such, a fee computed and payable monthly in an amount as
attached on Schedule A per annum of the Portfolio'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 Portfolio shall mean the average weekly value of the total assets of
the Portfolio, minus the sum of (i) accrued liabilities (including accrued
expenses) directly related to the Portfolio, (ii) that percent of both
declared and 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, that is equal to the
percent of the Fund's assets that the Portfolio represents, and (iii) that
percent of accrued liabilities related to the Fund in general that is equal
to the percent of the Fund's assets that the Portfolio represents. The
average weekly net assets of the Portfolio 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 and such determination shall be binding on
the Sub-Adviser.
5. Indemnity
(a) Subject to and only to the extent of the indemnification provided
to the Adviser by the Fund in the Advisory Agreement, the Adviser hereby
agrees to indemnify the Sub-Adviser and each of the Sub-Adviser's
directors, officers, employees and agents (including any individual who
serves at the Sub-Adviser's request as director, officer, partner, trustee
or the like of another corporation or other entity in connection with the
Sub-Adviser's duties under this Agreement) (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
the Adviser 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 Adviser or the Fund or its
stockholders 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, in accordance with paragraph 5(c) below, that such
settlement or compromise is in the best interests of the Fund and the
Adviser 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
the Adviser and did not involve disabling conduct by such indemnitee, (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 the Adviser and (4) the indemnity provided herein shall
only be effective if, and to the extent, the Adviser is indemnified by the
Fund pursuant to the Advisory Agreement for the loss related to such
indemnity.
(b) To the extent made available to the Adviser pursuant to the
Advisory Agreement, the Adviser shall make advance payments in connection
with the expenses of defending any action with respect to which
indemnification might be sought hereunder if the Adviser 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 Adviser, unless it is subsequently determined
that it is entitled to such indemnification and if the Adviser and 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 Adviser and the Fund shall be insured against
losses arising by reason of any lawful advances, (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 (D) 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) the Advisor together with 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
(a) 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 Act.
(b) This Agreement may be terminated by the Sub-Adviser at any time
without penalty upon giving the Adviser sixty days' written notice (which
notice may be waived by the Adviser) and may be terminated by the Adviser
at any time without penalty upon giving the Sub-Adviser sixty days' notice
(which notice may be waived by the Sub-Adviser); provided that such
termination by the Adviser 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 Sub-Adviser represents that it is a corporation and will
notify the Adviser promptly after any change in control of such
corporation, as defined in Section 2(a)(9) of the Act.
7. Assignment
This Agreement may not be assigned by either party hereto without the
prior written consent of the other party.
8. 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 date
actually received.
9. 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.
HYPERION CAPITAL MANAGEMENT, INC.
By:____________________________________________
LEND LEASE HYPERION CAPITAL ADVISORS, L.L.C.
By:____________________________________________
