INVESTMENT SUB-ADVISORY AGREEMENT
X.X Xxxxxx Investment Management Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Dear Sir or Madam:
This Agreement, executed this 30th day of September, 1999, and effective
the first day of October, 1999, between X.X. Xxxxxx Investment Management Inc.,
a Delaware corporation (the "Adviser") and LSA Asset Management LLC, a Delaware
limited liability company (the "Manager").
WHEREAS, LSA Variable Series Trust, a Delaware business trust (the "Trust")
has entered into an advisory agreement with the Manager (the "Investment
Advisory Agreement"), pursuant to which Manager will act as adviser to the X.X.
Xxxxxx Disciplined Equity Fund (the "Fund"), a series of the Trust.
WHEREAS, The Manager is authorized, with the approval of the Board of
Trustees of the Trust (the "Board" or "Trustees" as the context requires), to
retain the Adviser to provide investment advisory services to the Fund.
WHEREAS, The parties hereto wish to enter into an agreement whereby the
Adviser will provide investment advisory services to the Fund.
NOW THEREFORE, In consideration of the mutual covenants herein contained,
the Manager and the Adviser agree as follows:
1. APPOINTMENT
The Manager hereby appoints the Adviser to render certain investment
advisory services to the Fund as set forth herein. The Adviser hereby accepts
such appointment and agrees to perform such services on the terms herein set
forth, and for the compensation herein provided.
2. SERVICES AS INVESTMENT ADVISER
Subject to the supervision of the Manager and the Board, and in cooperation
with any administrator appointed by the Manager (the "Administrator"), the
Adviser shall (a) manage the Fund's assets in accordance with the investment
objectives, restrictions and limitations of the Fund, as set forth in the
Trust's most recent Registration Statement, subject to the Guidelines (as such
term is defined below); (b) make investment decisions for the Fund; (c) place
purchase and sale orders for portfolio transactions for the Fund; and (d) employ
professional portfolio managers and securities analysts to provide research
services to the Fund. In providing these services, the Adviser will conduct a
continual program of investment, evaluation and, if appropriate, sale and
reinvestment of the Fund's assets. The Adviser shall provide the Fund's
custodian (as defined below) on each business day with information relating to
all transactions concerning the Fund's assets and shall provide the Manager with
such information upon request of the Manager. The Adviser shall review all proxy
solicitation materials and be responsible for voting and handling all proxies in
relation to the securities held in the Fund. The Manager shall instruct the
custodian of the Fund and other parties providing services to the Fund to
promptly forward misdirected proxy materials to the Adviser.
The Adviser shall provide to the Manager a copy of its Form ADV as filed
with the Securities and Exchange Commission and as amended from time to time and
a list of the persons whom Adviser wishes to have authorized to give written
and/or oral instructions to the Fund's custodian.
Copies of the Registration Statement of the Trust, as currently in effect,
have been delivered to the Adviser. The Manager agrees, on an ongoing basis, to
provide to the Adviser as promptly as practicable copies of all amendments and
supplements to the Registration Statement.
The Manager shall provide the Adviser with a copy of the Trust's agreement
with the custodian designated to hold the assets of the Fund (the "Custodian")
and any modifications thereto (the "Custody Agreement"), copies of such
modifications to be provided to the Adviser a reasonable time in advance of the
effectiveness of such modifications. The assets of the Fund shall be maintained
in the custody of the Custodian identified in, and in accordance with the terms
and conditions of, the Custody Agreement (or any sub-custodian properly
appointed as provided in the Custody Agreement). The Adviser shall have no
liability for the acts or omissions of the Custodian unless such act or omission
is required by and taken in good faith and without negligence by the Custodian
in reliance upon improper instruction(s) given to the Custodian by a
representative of the Adviser, which improper instruction(s) is due to the gross
negligence or willful misconduct of the Adviser, properly authorized to give
such instruction(s) under the Custody Agreement. Any assets added to the Fund
shall be delivered directly to the Custodian.
2
The Manager agrees on an on-going basis to provide or cause to be provided
to the Adviser guidelines, to be revised as provided below (the "Guidelines"),
setting forth limitations, by dollar amount or percentage of net assets, on the
types of securities in which the Fund is permitted to invest or investment
activities in which the Fund is permitted to engage. Among other matters, the
Guidelines shall set forth clearly the limitations imposed upon the Fund as a
result of relevant diversification requirements under state and federal law
pertaining to insurance products, including, without limitation, the provisions
of Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code").
The Guidelines shall remain in effect until 12:00 p.m. on the third business day
following actual receipt by the Adviser of a written notice, denominated clearly
as such, setting forth revised Guidelines. The Adviser shall be permitted to
rely on the most recent Guidelines delivered to it. The Manager agrees that the
Adviser may rely on the Guidelines without independent verification of their
accuracy and that the Adviser will reasonably use its best judgment to interpret
the Guidelines.
The Manager shall perform quarterly and annual tax compliance tests to
ensure that the Fund is in compliance with Subchapter M and Section 817(h) of
the Code. In connection with such compliance tests, the Manager shall prepare
and provide reports to the Adviser within ten (10) business days of a calendar
quarter end relating to the diversification of the Fund under Subchapter M and
Section 817(h) of the Code. The Adviser shall review such reports for purposes
of determining compliance with such diversification requirements. If it is
determined that the Fund is not in compliance with the diversification
requirements noted above, the Adviser, in consultation with the Manager, will
take prompt action to bring the Fund back into compliance within the time
permitted under the Code (the Adviser's "Tax Compliance Responsibilities").
The Adviser shall for all purposes herein be deemed to be an independent
contractor. The Adviser has no authority to act for or represent the Trust or
the Fund in any way except to direct securities transactions pursuant to its
investment advice hereunder. The Adviser is not an agent of the Manager, the
Trust or the Fund.
3. BROKERAGE.
In selecting brokers or dealers to execute transactions on behalf of the
Fund, the Adviser will seek the best overall terms available. In assessing the
best overall terms available for any transaction, the Adviser will consider
factors it deems relevant, including, without limitation, the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and will continually monitor
such factors. In selecting brokers or dealers to execute a particular
transaction, and in evaluating the best overall terms available, the Adviser is
authorized to consider the brokerage and research services (within the meaning
of Section 28(e) of the Securities Exchange Act of 1934, as amended (the "1934
Act")) provided to the Fund and/or other accounts over which the Adviser or its
affiliates exercise investment discretion.
3
In no instance will the Fund's assets be purchased from or sold to the
Manager, Adviser, the Trust's principal underwriter, or any affiliated person of
such persons, acting as principal in the transaction, except to the extent
permitted by the Securities and Exchange Commission and the 1934 Act.
4. INFORMATION PROVIDED TO THE MANAGER.
The Adviser will keep the Manager informed of developments materially
affecting the Fund.
5. STANDARD OF CARE.
The Adviser shall exercise its best judgment in rendering the services
described in paragraphs 2, 3 and 4 above. The Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered 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 on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
6. COMPENSATION.
In consideration of the services rendered pursuant to this Agreement, the
Manager will pay the Adviser the fee as set forth in Exhibit A. Such fees will
be computed daily and payable no later than the 20th business day following the
end of each month. The fee for the period from the initial capitalization of the
Trust to the end of the month during which such capitalization shall have
occurred shall be prorated according to the proportion that such period bears to
the full monthly period. Upon any termination of this Agreement before the end
of a month, the fee for such part of that month shall be prorated according to
the proportion that such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to the Adviser, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Trust's
Registration Statement.
4
7. EXPENSES.
Except for expenses specifically assumed or agreed to be paid by the
Adviser pursuant hereto, the Adviser shall not be liable for any expenses of the
Manager or the Fund including, without limitation, (a) interest and taxes, (b)
brokerage commissions and other costs in connection with the purchase of sale of
securities or other investment instruments with respect to the Fund, and (c)
custodian fees and expenses. The Adviser will pay its own expenses incurred in
furnishing the services to be provided by it pursuant to this Agreement.
8. SERVICES TO OTHER COMPANIES OR ACCOUNTS.
The Manager understands that the Adviser now acts, will continue to act and
may act in the future as investment adviser to fiduciary and other managed
accounts and as investment adviser to other investment companies, and the
Manager has no objection to the Adviser so acting, provided that whenever the
Trust and one or more other accounts or investment companies advised by the
Adviser have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a methodology believed
to be equitable to each entity. The Adviser agrees to allocate similarly
opportunities to sell securities. The Manager recognizes that, in some cases,
this procedure may limit the size of the position that may be acquired or sold
for the Fund. In addition, the Manager understands that the persons employed by
the Adviser to assist in the performance of the Adviser's duties hereunder will
not devote their full time to such service and nothing contained herein shall be
deemed to limit or restrict the right of the Adviser or any affiliate of the
Adviser to engage in and devote time and attention to other business or to
render services of whatever kind or nature.
9. BOOKS AND RECORDS.
The Adviser shall maintain in compliance with the Investment Company Act of
1940 (the "1940 Act") all books and records with respect to transactions
involving the assets of the Fund for which the Adviser has responsibility. In
compliance with the requirements of Rule 31a-3 under the 1940 Act, the Adviser
hereby agrees that all records which it maintains for the Fund are the property
of the Trust and further agrees to surrender promptly to the Manager copies of
any of such records upon the Fund's or the Manager's request. The Adviser
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
Act the records relating to its activities hereunder required to be maintained
by Rule 31a-1 under the Act and to preserve the records relating to its
activities hereunder required by Rule 204-2 under the Investment Advisers Act of
1940, as amended, for the period specified in the rule.
5
The Adviser shall provide to the Manager or the Board such periodic and
special reports, balance sheets or financial information, and such other
information with regard to its affairs as the Manager or Board may reasonably
request.
10. TERMINATION OF AGREEMENT.
This Agreement shall become effective as of the date of its execution and
shall continue in effect for a period more than two years from the date of
execution only so long as such continuance is specifically approved by the
Trustees at the times and in the manner required by Section 15(a) and (c) of the
1940 Act and rules thereunder.
Pursuant to an Order of the Commission, the Manager may engage a
sub-adviser without first obtaining approval of the investment advisory
agreement by a vote of a majority of the outstanding voting securities of the
Fund. This Agreement shall become effective upon its approval by the Board. The
Adviser shall be without the protection accorded by shareholder approval of an
investment adviser's receipt of compensation under Section 36(b) of the 1940
Act.
This Agreement may be terminated, at any time, without penalty, by the
Manager or Trustees on sixty (60) days' written notice to the Adviser or by the
Adviser on sixty (60) days' written notice to the Manager.
The Agreement will terminate automatically in the event of assignment. The
agreement will terminate automatically upon the termination of the Investment
Advisory Agreement.
11. INDEMNIFICATION.
(a) The Manager shall indemnify and hold harmless the Adviser, its
officers, directors and affiliates and each person, if any, who controls the
Adviser within the meaning of Section 15 of the Securities Act of 1933, as
amended (the "1933 Act") ("Affiliates") against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith) ("Liabilities") directly arising out of
any service, other than as provided in paragraph (b) of this Section 11, to be
rendered under this Agreement except Liabilities resulting from willful
misfeasance, bad faith or gross negligence in the performance of Adviser's
duties. The Manager shall not be liable for any consequential or incidental
damages. The Adviser's complete compliance with the Guidelines referenced in
Section 2 may serve to mitigate conduct otherwise considered willful
misfeasance, bad faith or gross
negligence.
6
(b) With regard to the Adviser's Tax Compliance Responsibilities as set
forth in Section 2, the Manager shall not indemnify and hold harmless Adviser
for any negligent conduct or for Adviser's not taking any corrective action
required to be taken based on consultations with Manager.
(c) The Adviser shall indemnify and hold harmless the Manager and its
Affiliates and each person, if any, who controls the Manager within the meaning
of Section 15 of the 1933 Act, Allstate Life Insurance Company and its
Affiliates, including their separate accounts, which may invest in the Fund
(collectively, the "Life Company") against any Liabilities directly arising out
of the Adviser's willful misfeasance, bad faith or gross negligence in the
performance of its duties under this Agreement, and further, with regard to the
Adviser's Tax Compliance Responsibilities, shall indemnify Manager, Affiliates,
and the Life Company for Liabilities directly resulting from Adviser's negligent
conduct, or for Adviser's failing to take any corrective action required to be
taken based on consultations with Manager. The Adviser shall not be liable for
any consequential or incidental damages. The Adviser and its Affiliates will not
be liable to Manager for any Liabilities relating to the failure of Manager or
its Affiliates to comply with this Agreement and/or any applicable insurance
laws and rules, or as a result of any error of judgment or mistake of law.
Any tax consequence(s) under variable insurance products funded by the Fund
resulting from the Adviser's negligent failure to comply with its Tax Compliance
Responsibilities as defined in Section 2 of this Agreement, or resulting from
Adviser's failure to take any corrective action required to be taken based on
consultations with Manager, will be considered direct damages.
12. DISCLOSURE.
The Manager shall not, without the prior written consent of the Adviser,
make representations regarding or reference to the Adviser or any of its
affiliates in any disclosure document, advertisement, sales literature or other
promotional materials.
13. REFERENCE TO MANAGER OR LIFE COMPANY OR TRUST.
Any materials utilized by the Adviser which contain any information
relating to the Manager, a life insurance company investing in the Fund
(including any information relating to its separate accounts or variable annuity
or variable life insurance contracts) or the Trust shall be submitted to the
Manager for approval prior to use, not less than five (5) business days before
such approval is needed by the Adviser. No such materials shall be used if the
Adviser or the Manager reasonably objects in writing to such use within five (5)
days after receipt of such material.
7
14. COMPUTER SYSTEMS.
The Adviser hereby warrants and represents to the Manager that it has or
will have on or prior to December 31, 1999, plans, steps and procedures which
are reasonably designed to make its mission critical computers, software,
hardware, processes, and procedures related to the services provided herein that
are date sensitive, Year 2000 Compliant (as defined below), provided that,
Adviser makes no representation or warranty as to the Year 2000 Compliance (as
defined below) of third party products or services and Adviser shall not be
responsible for any failure of its computer, software, hardware, processes or
procedures to the extent such failures arise as a result of or in connection
with external dependencies including energy utilities, telecommunications firms,
clients, counter parties, exchanges, depositories, governments and regulatory
agencies and third party providers of products or services. As used herein, Year
2000 Compliant or Year 2000 Compliance means information and technology that
accurately processes date and time data, including calculating, comparing and
sequencing, from, into and between the twentieth and twenty-first centuries;
and, the years 1999 and 2000; and leap year calculations.
15. DEFINITIONS.
For the purposes of this Agreement, the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act.
16. MISCELLANEOUS.
Notices and other writings delivered or mailed postage prepaid to Manager
and the Trust at 0000 Xxxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxx 00000, Attention:
Xxxxxxx X. Xxxxxxx; or to Adviser at 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000,
Attention: Xxxxxxxx X. Xxxxx, or to such other address as Manager or Advisor may
hereafter specify by written notice to the most recent address specified by the
other party, will be deemed to have been properly delivered or given hereunder
to the respective addressee.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. This Agreement constitutes the entire agreement among the parties hereto
and supersedes any prior agreement among the parties relating to the subject
matter hereof. The paragraph headings of this Agreement are for convenience of
reference and do not constitute a part hereof. This Agreement shall be governed
in accordance with the laws of the State of Illinois, without giving effect to
principles of conflict of laws.
8
If the foregoing accurately sets forth our agreement, kindly indicate your
acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
LSA ASSET MANAGEMENT LLC
By: /s/ Xxxx Xxxxxx
---------------
Name: Xxxx Xxxxxx
Title: President
Accepted:
X.X. Xxxxxx Investment Management Inc.
By: /s/ Xxxxx Xxxxxxx
-----------------
Name: Xxxxx Xxxxxxx
Title: Vice President
9
EXHIBIT A
SUB-ADVISORY AGREEMENT
BETWEEN
LSA ASSET MANAGEMENT LLC
AND
X.X. XXXXXX INVESTMENT MANAGEMENT INC.
PORTFOLIO FEE SCHEDULE
X.X. Xxxxxx Disciplined Equity Fund .35% of average daily net
assets of the first $250 million;
and .30% of average daily net
assets in excess of $250 million.
10
