INTRINSIC VALUE FUND
SUB-ADVISORY AGREEMENT
Sub-Advisory Agreement (the "Agreement") executed as of October 17, 2005
between XXXX XXXXXXX INVESTMENT MANAGEMENT SERVICES, LLC, a Delaware limited
liability company (the "Adviser"), and GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC, a
Massachusetts limited liability company (the "Subadviser")(Intrinsic Value
Fund).
WHEREAS, the Adviser serves as investment adviser of the Intrinsic Value
Fund (the "Fund"), a series of Xxxx Xxxxxxx Funds II (the "Trust"), a
Massachusetts business trust which has filed a registration statement under the
Investment Company Act of 1940, as amended (the "1940 Act") and the Securities
Act of 1933 (the "1933 Act"); and
WHEREAS, the Trust consists of several series, one of which is the Fund;
and
WHEREAS, the Adviser is registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), and desires to avail itself of the
services, advice and assistance of the Subadviser to assist the Adviser in
providing investment advisory services to the Fund; and
WHEREAS, the Subadviser is registered under the Advisers Act, and is
engaged in the business of rendering investment advisory services to investment
companies and other institutional clients and desires to provide such services
to the Adviser;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
it is agreed as follows:
1. SERVICES TO BE RENDERED BY THE SUBADVISER
a. Subject always to the control of the trustees of the Trust (the
"Trustees"), the Subadviser, at its expense, will furnish continuously an
investment program for the Fund and will make investment decisions on
behalf of the Fund and place all orders for the purchase and sale of
portfolio securities and all other investments. The Subadviser will
allocate all facilities and personnel necessary for the conduct of its
duties under this Agreement. In the performance of its duties, the
Subadviser will comply with (1) the provisions of the Trust's Agreement and
Declaration of Trust and By-laws, and the investment objectives, policies
and restrictions of the Fund as set forth in its current Prospectus and
Statement of Additional Information (copies of which will be supplied to
the Subadviser upon filing with the SEC), and any amendments to such
Agreement and Declaration of Trust, By-laws, investment objectives,
policies and restrictions which the Trustees or the Adviser, as the case
may be, may from time to time determine, as promptly as practicable after
such amendments have been communicated to the Subadviser in writing, and
(2) other policies which the Trustees may from time to time determine, as
promptly as practicable after such policies have been communicated to the
Subadviser in writing. The Subadviser and the Adviser shall each make its
officers and employees and any information reasonably requested available
to the other from time to time at reasonable times to review investment
policies of the Fund, to facilitate the Adviser's monitoring of the
Subadviser, and to consult with each other regarding the investment affairs
of the Fund.
b. The Subadviser shall bear its own expenses in providing services pursuant
to this Agreement, including salaries of its personnel. The Subadviser
shall not be obligated to pay any expenses of the Adviser, the Trust or the
Fund, including without limitation (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase and sale of
securities and other investment instruments of the Fund; and (iii)
custodian fees and expenses. The Subadviser shall not be obligated to pay
any expenses of or for the Fund not expressly assumed by the Subadviser
pursuant to this Section 1. Any reimbursement of management or other fees
required by an expense limitation or waiver provision, and any liability
arising out of a violation by the Adviser of Section 36(b) of the 1940 Act,
shall be the sole responsibility of the Adviser, provided that nothing
herein shall relieve the Subadviser from its own liability under Section
36(b) of the 1940 Act with respect to its duties under this Agreement.
c. In the selection of brokers or dealers and the placing of orders for the
purchase and sale of portfolio investments for the Fund, the Subadviser
shall use its best efforts to obtain for the Fund the most favorable price
and execution available, except to the extent it may be permitted to pay
higher brokerage commissions for brokerage and research services as
described below. In using its best efforts to obtain for the Fund the most
favorable price and execution available, the Subadviser, bearing in mind
the Fund's best interests at all times, shall consider all factors it deems
relevant, including, by way of illustration, price, the size of the
transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices
and trends, the execution capability, reputation, experience and financial
stability of the broker or dealer involved and the quality of service
rendered by the broker or dealer in other transactions. Subject to such
policies as the Trustees of the Trust may determine and communicate to the
Subadviser in writing, the Subadviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of its having caused the Fund to pay a broker or
dealer that provides brokerage and research services to the Subadviser or
its affiliates an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction, if the Subadviser
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by
such broker or dealer, viewed in terms of either that particular
transaction or the Subadviser's overall responsibilities with respect to
the Fund and to other clients of the Subadviser and its affiliates as to
which the Subadviser or its affiliates exercise investment discretion.
d. The Subadviser may execute Fund documentation, agreements, contracts and
other documents requested by brokers, dealers, counterparties and other
persons in connection with its providing investment advisory services to
the Fund.
e. Nothing herein shall be considered as constituting the Subadviser as an
agent for the Adviser or the Fund or the Trust or as anything other than an
independent contractor with respect to the Adviser or the Fund or the
Trust.
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f. The Subadviser makes no representation or warranty, express or implied,
that any level of performance or investment results will be achieved by the
Fund or that the Fund will perform comparably with any standard, including
other funds managed by the Subadviser.
g. The Subadviser will provide such access to the Subadviser's chief
compliance officer and such compliance-related information concerning the
Subadviser's services to the Fund under this Agreement as may reasonably be
requested by the chief compliance officer of the Adviser or of the Fund, as
the case may be.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a shareholder, member, director, officer or
employee of, or be otherwise interested in, the Subadviser, and in any person
controlled by or under common control with the Subadviser, and that the
Subadviser and any person controlled by or under common control with the
Subadviser may have an interest in the Trust. It is also understood that this is
a non-exclusive contract for services, and that the Subadviser and persons
controlled by or under common control with the Subadviser have and may have
advisory, management service or other contracts with other organizations and
persons, and may have other interests and businesses. The Subadviser may, by way
of example and not by way of limitation, undertake to act as investment adviser
or subadviser for any investment company, including without limitation other
U.S. registered investment companies with identical investment policies to the
Fund. Nothing in this paragraph is intended to negate or otherwise limit any
existing or future agreements between the Adviser and the Subadviser beyond this
Agreement that may have the effect of limiting (i) the organizations and persons
to which the Subadviser may provide investment advisory services or (ii) the
nature of the investment advisory services the Subadviser may provide to other
organizations and persons.
3. COMPENSATION TO BE PAID BY THE MANAGER TO THE SUBADVISER
The Adviser will pay to the Subadviser the compensation specified in
Appendix A in return for the Subadviser's services rendered hereunder.
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS CONTRACT
This Agreement shall automatically terminate, without the payment of any
penalty by the Fund, in the event of its assignment or in the event that the
Investment Management Contract between the Adviser and the Trust shall have
terminated for any reason; and this Agreement shall not be amended unless such
amendment is approved as follows: (i) at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, unless either (A) a
determination is made that shareholder approval is not required based on SEC
guidance or reliance on SEC staff interpretations or (B) pursuant to exemptive
relief no such approval is required; and (ii) by the vote, cast in person at a
meeting called for the purpose of voting on such approval, of a majority of the
Trustees of the Trust who are not interested persons of the Trust or of the
Adviser or of the Subadviser; and (iii) by both parties hereto.
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5. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT
a. This Agreement shall not become effective until such time as it is fully
executed by all parties hereto (the "Effective Date"). Subject to any early
termination provisions below, this Agreement shall continue in full force
and effect as to the Fund for a period of five years from the Effective
Date.
b. Notwithstanding the foregoing, if (i) the Trustees of the Trust or the
shareholders by the affirmative vote of a majority of the outstanding
shares of the Fund, and (ii) a majority of the Trustees of the Trust who
are not interested persons of the Trust or of the Adviser or of the
Subadviser, by vote cast in person at a meeting called for the purpose of
voting on such approval, do not specifically approve at least annually the
continuance of this Agreement, then this Agreement shall automatically
terminate at the close of business on the second anniversary of the
Effective Date, or upon the expiration of one year from the effective date
of the last such continuance, whichever is later. This Agreement may
continue in effect following the fifth anniversary of the Effective Date
only so long as such continuance is approved in accordance with applicable
law.
c. Notwithstanding the foregoing, if the continuance of this Agreement is
submitted to the shareholders of the Fund for their approval and such
shareholders fail to approve such continuance of this Agreement as provided
herein, the Subadviser may continue to serve hereunder in a manner
consistent with the 1940 Act and the rules and regulations thereunder.
d. The Trust may at any time terminate this Agreement upon 60 days prior
written notice delivered or mailed by registered mail, postage prepaid, to
the Adviser and the Subadviser. Action by the Trust to effect such
termination may be taken either (i) by vote of a majority of its Trustees,
or (ii) by the affirmative vote of a majority of the outstanding shares of
the Fund.
e. Either the Adviser or the Subadviser may at any time terminate this
Agreement by not less than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the other party and the Fund.
f. Termination of this Agreement pursuant to this Section 5 shall be without
the payment of any penalty by the Fund. Neither the Adviser nor the Trust
shall use or refer in any way to the name of the Subadviser following the
termination of this Agreement without the Subadviser's consent, except as
may be required by law.
6. CERTAIN INFORMATION
The Subadviser shall promptly notify the Adviser in writing of the
occurrence of any of the following events: (a) the Subadviser shall fail to be
registered as an investment adviser under the Advisers Act and under the laws of
any jurisdiction in which the Subadviser is required to be registered as an
investment adviser in order to perform its obligations under this Agreement, (b)
the Subadviser shall be disqualified from serving as investment adviser to the
Fund pursuant to Section 9 of the 1940 Act, or otherwise, (c) the Subadviser
shall have been served or otherwise have notice of any action, suit, proceeding,
inquiry or investigation, at law or in equity, before or by any court, public
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board or body, involving the affairs of the Trust, (d) there is a change in
control of the Subadviser or any parent of the Subadviser within the meaning of
the 1940 Act, (e) there is a material adverse change in the business or
financial position of the Subadviser that would materially affect the services
provided by the Subadviser hereunder, or (f) any person(s) primarily responsible
for the day-to-day management of the Fund's portfolio, if any, shall have
changed.
7. CERTAIN DEFINITIONS
For the purposes of this Agreement, the "affirmative vote of a majority of
the outstanding shares of the Fund" means the affirmative vote, at a duly called
and held meeting of shareholders, (a) of the holders of 67% or more of the
shares of the Fund, as the case may be, present (in person or by proxy) and
entitled to vote at such meeting, if the holders of more than 50% of the
outstanding shares of the Fund, as the case may be, entitled to vote at such
meeting are present in person or by proxy, or (b) of the holders of more than
50% of the outstanding shares of the Fund, as the case may be, entitled to vote
at such meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person,"
"control," "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act; the term "specifically approve at least
annually" shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder; and the term "brokerage and research services"
shall have the meaning given in the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
8. NONLIABILITY OF SUBADVISER
Notwithstanding any other provision of this Agreement, in the absence of
willful misconduct, bad faith or gross negligence on the part of the Subadviser,
or reckless disregard of its obligations and duties hereunder, the Subadviser,
including its officers, directors, employees and members, shall not be subject
to any liability to the Adviser, to the Trust, to the Fund, or to any
shareholder, officer, director or Trustee thereof, for any act or omission in
the course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
9. EXERCISE OF VOTING RIGHTS
Except as instructed otherwise by the Trustees of the Trust or the Adviser,
the Subadviser shall at its discretion exercise or procure the exercise of any
voting right attaching to investments of the Fund. The Adviser agrees and
acknowledges that the Subadviser shall not be obligated to take any action with
respect to any class action proceedings or other legal action concerning
securities held in the Fund's portfolio, except to forward to the Adviser in a
timely fashion any notice of such an action that the Subadviser may receive.
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10. REPORTS
During the term of this Agreement, the Adviser agrees to use its best
efforts (a) to furnish to the Subadviser, at a reasonable time prior to the use
thereof, all prospectuses (as described in Section 10(a) of the Securities Act
of 1933, as amended (the "1933 Act")), proxy statements, reports to
shareholders, sales literature or other material relating to the Trust which
describe the Subadviser or its ownership, business or investment processes in
any way that is materially different from the "Agreed Disclosure" (which for
this purpose means either (i) the prospectus (including any prospectus
supplement) or (ii) the most recent amendment to the Trust's registration
statement under the 1933 Act depending on whether, on the relevant date, the
prospectus or the amendment was more recently filed with the SEC) and (b) not to
use any such material (to the extent it relates to the Subadviser) if the
Subadviser objects in writing that the description of the Subadviser or its
ownership, business or investment process is materially misleading or
inaccurate.
11. CONSULTATION WITH SUBADVISERS
In order to allow the Trust and the parties hereto to take advantage of the
safe harbor under Rule 17a-10 under the 1940 Act, the Subadviser is prohibited
from consulting with the entities listed below concerning transactions for the
Fund in securities or other assets:
1. other subadvisers to the Fund
2. other subadvisers to a series of the Trust
3. other subadvisers to a fund under common control with the Fund
12. MISCELLANEOUS
a. Any information and advice furnished by either party to this Agreement to
the other shall be treated as confidential and shall not be disclosed to
third parties without the consent of the other party hereto except as
required by applicable law, rule or regulation.
b. This Agreement shall be governed and construed in accordance with the laws
of The Commonwealth of Massachusetts.
c. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
d. The Agreement and Declaration of Trust of the Trust, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of The Commonwealth of Massachusetts, provides that
the name of the Trust refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no
Trustee, shareholder, officer, employee or agent of the Trust shall be held
to any personal liability, nor shall resort be had to their private
property, for the satisfaction of any obligation or claim, in connection
with the affairs of the Trust or any series thereof (including the Fund),
but only the assets belonging to the Trust, or to the Fund or other
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particular series of the Trust with respect to which such obligation or
claim arose, shall be liable.
(THE REMAINDER OF THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK)
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In Witness Whereof, XXXX XXXXXXX INVESTMENT MANAGEMENT SERVICES, LLC and
GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC have each caused this instrument to be
signed in duplicate on its behalf by its duly authorized representative, all as
of the day and year first above written.
XXXX XXXXXXX INVESTMENT MANAGEMENT SERVICES, LLC
By: Xxxx Xxxxxxx Life Insurance Company (U.S.A.), its managing member
By: /s/Xxxxxx X. Xxxxx
Name: Xxxxxx X. Xxxxx
Title: Vice President & Chief Administrative Officer
GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC
By: /s/Xxxxx X. Xxxxx
Name: Xxxxx X. Xxxxx
Title: Legal Counsel
By: /s/Xxxxxxx X. Xxxxxx
Name: Xxxxxxx X. Xxxxxx
Title: Legal Counsel
Accepted and agreed to as of the day and year first above written:
XXXX XXXXXXX FUNDS II,
On behalf of its Growth & Income Fund
By: /s/Xxxxx X. Xxxxxxxxx
Name: Xxxxx X. Xxxxxxxxx
Title: President
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APPENDIX A
The Subadviser shall serve as investment subadviser for the Fund. The
Adviser will pay the Subadviser, as full compensation for all services provided
under this Agreement, the fee computed as indicated below.
1. For purposes of calculating the fee to be paid to the Subadviser under this
Agreement:
"Fund Assets" shall mean the net assets of the Fund managed by the
Subadviser for which the fee is being calculated;
"Other Assets" shall mean the net assets of the portion of assets managed
by the Subadviser of the accounts listed in the table under Item 3 below;
"Combined Assets" shall mean the sum of Fund Assets and Other Assets; and
"Daily Fund Net Assets" shall mean the net asset value of the Fund Assets
as of the end of each day.
"Daily Combined Net Assets" shall mean the net asset value of the Combined
Assets as of the end of each day.
2. The Subadviser's fee shall be calculated and accrued daily based upon the
Daily Fund Net Assets and the sum of the daily fee accruals shall be paid
monthly in arrears (within 10 days of receipt by the Adviser of an invoice from
the Subadviser). The fee accrued each calendar day shall be calculated by
applying the Applicable Rate, as determined in accordance with Item 4 below, to
the Daily Fund Net Assets, and dividing by 365 (366 in a leap year).
3. The following table shall be used to determine the Other Assets that
correspond to the Fund:
Names of Accounts Used to Calculate "Other Assets"
--------------------------------------------------
Intrinsic Value Fund, a series of Xxxx Xxxxxxx Funds III;
Intrinsic Value Trust, a series of Xxxx Xxxxxxx Trust
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4. The following fee schedule shall be used to determine the Applicable Rate
used in calculating the fee to be paid to the Subadviser under this Agreement,
in each case based on the Daily Combined Net Assets as indicated.
Second Tranche: Third Tranche:
Daily Combined Net Daily Combined Net
First Tranche: Assets in Excess of Assets in Excess of Fourth Tranche:
Daily Combined Net $500,000,000 $1,000,000,000 Daily Combined Net
Assets and up to and up to Assets in Excess of
Name of Fund up to $500,000,000 $1,000,000,000 $2,500,000,000 $2,500,000,000
Intrinsic Value Fund 0.33% 0.31% 0.30% 0.29%
The "Applicable Rate" is equal to (a) the sum of the products of the percentage
and the dollar amount of the portion of Daily Combined Net Assets in each
respective tranche, divided by (b) the total amount of Daily Combined Net
Assets. For example, if Daily Combined Net Assets were $3,000,000,000, the
Applicable Rate would be (($500,000,000 * 0.33%) + ($500,000,000 * 0.31%) +
($1,500,000,000 * 0.30 %) + ($500,000,000 * 0.29%)) / $3,000,000,000 = ($1.65m +
$1.55m + $4.5m + $1.45m) / $3,000m = 0.305%.
A-2
