FORM OF
INVESTMENT ADVISORY AGREEMENT
between
THE FBR FAMILY OF FUNDS
and
FBR FUND ADVISERS, INC.
AGREEMENT made as of the ___ day of _______, 1996, by and between The FBR Family
of Funds, a Delaware business trust which may issue one or more series of shares
of beneficial interest (the "Trust"), and FBR Fund Advisers, Inc., a Delaware
corporation (the "Adviser").
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Trust Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust desires to retain the Adviser to furnish investment
advisory services to the funds listed on Schedule A (each, a "Fund" and
collectively, the "Funds"), and the Adviser represents that it is willing and
possesses legal authority to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment.
(a) General. The Trust hereby appoints the Adviser to act as
investment adviser to the Funds for the period and on the terms
set forth in this Agreement. The Adviser accepts such appointment
and agrees to furnish the services herein set forth for the
compensation herein provided.
(b) Employees of Affiliates. The Adviser may, in its discretion,
provide such services through its own employees or the employees
of one or more affiliated companies that are qualified to act as
an investment adviser to the Trust under applicable laws;
provided that (i) all persons, when providing services hereunder,
are functioning as part of an organized group of persons, and
(ii) such organized group of persons is managed at all times by
authorized officers of the Adviser.
(c) Sub-Advisers. It is understood and agreed that the Adviser may
from time to time employ or associate with such other entities or
persons as the Adviser believes appropriate to assist in the
performance of this Agreement with respect to a particular Fund
or Funds (each a "Sub-Adviser"), and that any such Sub-Adviser
shall have all of the rights and powers of the Adviser set forth
in this Agreement; provided that a Fund shall not pay any
additional compensation for any Sub-Adviser and the Adviser shall
be as fully responsible to the Trust for the acts and omissions
of the Sub-Adviser as it is for its own acts and omissions; and
provided further that the retention of any Sub-Adviser shall be
approved in advance by (i)
the Board of Trustees of the Trust and (ii) the shareholders of
the relevant Fund if required under any applicable provisions of
the 1940 Act. The Adviser will review, monitor and report to the
Trust's Board of Trustees regarding the performance and
investment procedures of any Sub-Adviser. In the event that the
services of any Sub-Adviser are terminated, the Adviser may
provide investment advisory services pursuant to this Agreement
to the Fund without a Sub-Adviser and without further shareholder
approval, to the extent consistent with the 1940 Act. A
Sub-Adviser may be an affiliate of the Adviser.
2. Delivery of Documents. The Trust has delivered to the Adviser copies
of each of the following documents along with all amendments thereto through the
date hereof, and will promptly deliver to it all future amendments and
supplements thereto, if any:
(a) the Trust's Trust Instrument;
(b) the Bylaws of the Trust;
(c) resolutions of the Board of Trustees of the Trust authorizing the
execution and delivery of this Agreement;
(d) the Trust's Registration Statement under the Securities Act of
1933, as amended (the "1933 Act"), and the 1940 Act, on Form N-1A
as filed with the Securities and Exchange Commission (the
"Commission");
(e) Notification of Registration of the Trust under the 1940 Act on
Form N-8A as filed with the Commission; and
(f) the currently effective Prospectus and Statement of Additional
Information of the Funds.
3. Investment Advisory Services.
(a) Management of the Funds. The Adviser hereby undertakes to act as
investment adviser to the Funds. The Adviser shall regularly
provide investment advice to the Funds and continuously supervise
the investment and reinvestment of cash, securities and other
property composing the assets of the Funds and, in furtherance
thereof, shall:
(i) superise all aspects of the operations of the Trust and
each Fund;
(ii) obtain and evaluate pertinent economic, statistical and
financial data, as well as other significant events and
developments, which affect the economy generally, the Funds'
investment programs, and the issuers of securities included
in the Funds' portfolios and the industries in which they
engage, or which may relate to securities or other
investments which the Adviser may deem desirable for
inclusion in a Fund's portfolio;
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(iii) determine which issuers and securities shall be included
in the portfolio of each Fund;
(iv) furnish a continuous investment program for each Fund;
(v) in its discretion and without prior consultation with
the Trust, buy, sell, lend and otherwise trade any
stocks, bonds and other securities and investment
instruments on behalf of each Fund; and
(vi) take, on behalf of each Fund, all actions the Adviser
may deem necessary in order to carry into effect such
investment program and the Adviser's functions as
provided above, including the making of appropriate
periodic reports to the Trust's Board of Trustees.
(b) Covenants. The Adviser shall carry out its investment advisory
and supervisory responsibilities in a manner consistent with
the investment objectives, policies, and restrictions provided
in: (i) each Fund's Prospectus and Statement of Additional
Information as revised and in effect from time to time; (ii)
the Trust's Trust Instrument, Bylaws or other governing
instruments, as amended from time to time; (iii) the 1940 Act;
(iv) other applicable laws; and (v) such other investment
policies, procedures and/or limitations as may be adopted by
the Trust with respect to a Fund and provided to the Adviser
in writing. The Adviser agrees to use reasonable efforts to
manage each Fund so that it will qualify, and continue to
qualify, as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended, and
regulations issued thereunder (the "Code"), except as may be
authorized to the contrary by the Trust's Board of Trustees.
The management of the Funds by the Adviser shall at all times
be subject to the review of the Trust's Board of Trustees.
(c) Books and Records. Pursuant to applicable law, the Adviser
shall keep each Fund's books and records required to be
maintained by, or on behalf of, the Funds with respect to
advisory services rendered hereunder. The Adviser agrees that
all records which it maintains for a Fund are the property of
the Fund and it will promptly surrender any of such records to
the Fund upon the Fund's request. The Adviser further agrees
to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act any such records of the Fund required to be preserved
by such Rule.
(d) Reports, Evaluations and other Services. The Adviser shall
furnish reports, evaluations, information or analyses to the
Trust with respect to the Funds and in connection with the
Adviser's services hereunder as the Trust's Board of Trustees
may request from time to time or as the Adviser may otherwise
deem to be desirable. The Adviser shall make recommendations
to the Trust's Board of Trustees with respect to Trust
policies, and shall carry out such policies as are adopted by
the Board of Trustees. The Adviser shall, subject to review by
the Board of Trustees, furnish such other services as the
Adviser shall from time to
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time determine to be necessary or useful to perform its
obligations under this Agreement.
(e) Purchase and Sale of Securities. The Adviser shall place all
orders for the purchase and sale of portfolio securities for
each Fund with brokers or dealers selected by the Adviser,
which may include brokers or dealers affiliated with the
Adviser to the extent permitted by the 1940 Act and the
Trust's policies and procedures applicable to the Funds. The
Adviser shall use its best efforts to seek to execute
portfolio transactions at prices which, under the
circumstances, result in total costs or proceeds being the
most favorable to the Funds. In assessing the best overall
terms available for any transaction, the Adviser shall
consider all factors it deems relevant, including the breadth
of the market in the security, the price of the security, the
financial condition and execution capability of the broker or
dealer, research services provided to the Adviser, and the
reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. In no event
shall the Adviser be under any duty to obtain the lowest
commission or the best net price for any Fund on any
particular transaction, nor shall the Adviser be under any
duty to execute any order in a fashion either preferential to
any Fund relative to other accounts managed by the Adviser or
otherwise materially adverse to such other accounts.
(f) Selection of Brokers or Dealers. In selecting brokers or
dealers qualified to execute a particular transaction, brokers
or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934) to the Adviser, the
Funds and/or the other accounts over which the Adviser
exercises investment discretion. The Adviser is authorized to
pay a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio
transaction for a Fund which is in excess of the amount of
commission another broker or dealer would have charged for
effecting that transaction if the Adviser determines in good
faith that the total commission is 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 overall responsibilities of the
Adviser with respect to accounts over which it exercises
investment discretion. The Adviser shall report to the Board
of Trustees of the Trust regarding overall commissions paid by
the Funds and their reasonableness in relation to the benefits
to the Funds.
(g) Aggregation of Securities Transactions. In executing portfolio
transactions for a Fund, the Adviser may, to the extent
permitted by applicable laws and regulations, but shall not be
obligated to, aggregate the securities to be sold or purchased
with those of other Funds or its other clients if, in the
Adviser's reasonable judgment, such aggregation (i) will
result in an overall economic benefit to the Fund, taking into
consideration the advantageous selling or purchase price,
brokerage commission and other expenses, and trading
requirements, and (ii) is not inconsistent with the policies
set forth in the Trust's registration
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statement and the Fund's Prospectus and Statement of
Additional Information. In such event, the Adviser will
allocate the securities so purchased or sold, and the expenses
incurred in the transaction, in an equitable manner,
consistent with its fiduciary obligations to the Fund and such
other clients.
4. Representations and Warranties.
(a) The Adviser hereby represents and warrants to the Trust as follows:
(i) The Adviser is a corporation duly organized and in good
standing under the laws of the State of Virginia and is fully
authorized to enter into this Agreement and carry out its
duties and obligations hereunder.
(ii) The Adviser is registered as an investment adviser with the
Commission under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), and is registered or licensed as
an investment adviser under the laws of all applicable
jurisdictions. The Adviser shall maintain such registrations
or licenses in effect at all times during the term of this
Agreement.
(iii) The Adviser at all times shall provide its best judgment and
effort to the Trust in carrying out the Adviser's obligations
hereunder.
(b) The Trust hereby represents and warrants to the Adviser as follows:
(i) The Trust has been duly organized as a business trust under
the laws of the State of Delaware and is authorized to enter
into this Agreement and carry out its terms.
(ii) The Trust is registered as an investment company with the
Commission under the 1940 Act and shares of each Fund are
registered for offer and sale to the public under the 1933 Act
and all applicable state securities laws where currently sold.
Such registrations will be kept in effect during the term of
this Agreement.
5. Compensation. As compensation for the services which the Adviser is
to provide or cause to be provided pursuant to Paragraph 3, each Fund shall pay
to the Adviser out of Fund assets an annual fee, computed and accrued daily and
paid in arrears on the first business day of every month, at the rate set forth
opposite each Fund's name on Schedule A, which shall be a percentage of the
average daily net assets of the Fund (computed in the manner set forth in the
Fund's most recent Prospectus and Statement of Additional Information)
determined as of the close of business on each business day throughout the
month. At the request of the Adviser,
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some or all of such fee shall be paid directly to a Sub-Adviser. The fee for any
partial monthunder this Agreement shall be calculated on a proportionate basis.
In the event that the total expenses of a Fund exceed the limits on investment
company expenses imposed by any statute or any regulatory authority of any
jurisdiction in which shares of such Fund are qualified for offer and sale, the
Adviser will bear the amount of such excess, except: (i) the Adviser shall not
be required to bear such excess to an extent greater than the compensation due
to the Adviser for the period for which such expense limitation is required to
be calculated unless such statute or regulatory authority shall so require, and
(ii) the Adviser shall not be required to bear the expenses of the Fund to an
extent which would result in the Fund's or Trust's inability to qualify as a
regulated investment company under the provisions of Subchapter M of the Code.
6. Interested Persons. It is understood that, to the extent consistent
with applicable laws, the Trustees, officers and shareholders of the Trust are
or may be or become interested in the Adviser as directors, officers or
otherwise and that directors, officers and shareholders of the Adviser are or
may be or become similarly interested in the Trust.
7. Expenses. As between the Adviser and the Funds, the Funds will pay
for all their expenses other than those expressly stated to be payable by the
Adviser hereunder, which expenses payable by the Funds shall include, without
limitation, (i) interest and taxes; (ii) brokerage commissions and other costs
in connection with the purchase or sale of securities and other investment
instruments, which the parties acknowledge might be higher than other brokers
would charge when a Fund utilizes a broker which provides brokerage and research
services to the Adviser as contemplated under Paragraph 3 above; (iii) fees and
expenses of the Trust's Trustees that are not employees of the Adviser; (iv)
legal and audit expenses; (v) administrator, custodian, pricing and bookkeeping,
registrar and transfer agent fees and expenses; (vi) fees and expenses related
to the registration and qualification of the Funds' shares for distribution
under state and federal securities laws; (vii) expenses of printing and mailing
reports and notices and proxy material to shareholders, unless otherwise
required; (viii) all other expenses incidental to holding meetings of
shareholders, including proxy solicitations therefor, unless otherwise required;
(ix) expenses of typesetting for printing Prospectuses and Statements of
Additional Information and supplements thereto; (x) expenses of printing and
mailing Prospectuses and Statements of Additional Information and supplements
thereto sent to existing shareholders; (xi) insurance premiums for fidelity
bonds and other coverage to the extent approved by the Trust's Board of
Trustees; (xii) association membership dues authorized by the Trust's Board of
Trustees; and (xiii) such non-recurring or extraordinary expenses as may arise,
including those relating to actions, suits or proceedings to which the Trust is
a party (or to which the Funds' assets are subject) and any legal obligation for
which the Trust may have to provide indemnification to the Trust's Trustees and
officers.
8. Non-Exclusive Services; Limitation of Adviser's Liability. The
services of the Adviser to the Funds are not to be deemed exclusive and the
Adviser may render similar services to others and engage in other activities.
The Adviser and its affiliates may enter into other agreements with the Funds
and the Trust for providing additional services to the Funds and
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the Trust which are not covered by this Agreement, and to receive additional
compensation for suchservices. In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties hereunder on the
part of the Adviser, or a breach of fiduciary duty with respect to receipt of
compensation, neither the Adviser nor any of its directors, officers,
shareholders, agents, or employees shall be liable or responsible to the Trust,
the Funds or to any shareholder of the Funds for any error of judgment or
mistake of law or for any act or omission in the course of, or connected with,
rendering services hereunder or for any loss suffered by the Trust, a Fund or
any shareholder of a Fund in connection with the performance of this Agreement.
9. Effective Date; Modifications; Termination. This Agreement shall
become effective on _______ , 1996, provided that it shall have been approved by
a majority of the outstanding voting securities of each Fund, in accordance with
the requirements of the 1940 Act, or such later date as may be agreed by the
parties following such shareholder approval.
(a) This Agreement shall continue in force until ___________, 1998.
Thereafter, this Agreement shall continue in effect as to each
Fund for successive annual periods, provided such continuance is
specifically approved at least annually (i) by a vote of the
majority of the Trustees of the Trust who are not parties to this
Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval
and (ii) by a vote of the Board of Trustees of the Trust or a
majority of the outstanding voting shares of the Fund.
(b) The modification of any of the non-material terms of this
Agreement may be approved by a vote of a majority of those
Trustees of the Trust who are not interested persons of any party
to this Agreement, cast in person at a meeting called for the
purpose of voting on such approval.
(c) Notwithstanding the foregoing provisions of this Paragraph 9,
either party hereto may terminate this Agreement at any time on
sixty (60) days' prior written notice to the other, without
payment of any penalty. Such a termination by the Trust may be
effected severally as to any particular Fund, and shall be
effected as to any Fund by vote of the Trust's Board of Trustees
or by vote of a majority of the outstanding voting securities of
the Fund. This Agreement shall terminate automatically in the
event of its assignment.
10. Limitation of Liability of Trustees and Shareholders. The Adviser
acknowledges the following limitation of liability:
The terms "The FBR Family of Funds" and "Trustees" refer, respectively,
to the trust created and the Trustees, as trustees but not individually or
personally, acting from time to time under the Trust Instrument, to which
reference is hereby made, such reference being inclusive of any and all
amendments thereto so filed or hereafter filed. The obligations of "The FBR
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Family of Funds" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities and are not binding upon any of the Trustees, shareholders or
representatives of the Trust personally, but bind only the assets of the Trust,
and all persons dealing with the Trust or a Fund must look solely to the assets
of the Trust or Fund for the enforcement of any claims against the Trust or
Fund.
11. Non-Exclusive Use of the Name "FBR". The Trust acknowledges that it
adopted its name through the permission of the Adviser. The Adviser hereby
consents to the non-exclusive use by the Trust of the name "FBR" only so long as
the Adviser serves as the Funds' adviser.
If the Adviser or any successor to its business shall cease to furnish
services to the Funds under this Agreement or similar contractual arrangement,
the Trust:
(a) as promptly as practicable, will take all necessary action to
cause its Certificate of Trust to be amended to accomplish a
change of name; and
(b) within 90 days after the termination of this Agreement or such
similar contractual arrangement, shall cease to use in any other
manner, including but not limited to use in any prospectus, sales
literature or promotional material, the name "FBR" or any name,
xxxx or logotype derived from it or similar to it or indicating
that the Funds are managed by or otherwise associated with the
Adviser.
12. Certain Definitions. The terms "vote of a majority of the
outstanding voting securities," "assignment," "control," and "interested
persons," when used herein, shall have the respective meanings specified in the
1940 Act. References in this Agreement to the 1940 Act and the Advisers Act
shall be construed as references to such laws as now in effect or as hereafter
amended, and shall be understood as inclusive of any applicable rules,
interpretations and/or orders adopted or issued thereunder by the Commission.
13. Independent Contractor. The Adviser shall for all purposes herein
be deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized by the Board of Trustees of the Trust from time to
time, have no authority to act for or represent a Fund in any way or otherwise
be deemed an agent of a Fund.
14. Structure of Agreement. The Trust is entering into this Agreement
on behalf of the respective Funds severally and not jointly. The
responsibilities and benefits set forth in this Agreement shall refer to each
Fund severally and not jointly. No Fund shall have any responsibility for any
obligation of any other Fund arising out of this Agreement. Without otherwise
limiting the generality of the foregoing:
(a) any breach of any term of this Agreement regarding the Trust with
respect to any one Fund shall not create a right or obligation
with respect to any other Fund;
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(b) under no circumstances shall the Adviser have the right to set
off claims relating to a Fund by applying property of any other
Fund; and
(c) the business and contractual relationships created by this
Agreement, consideration for entering into this Agreement, and
the consequences of such relationship and consideration relate
solely to the Trust and the particular Fund to which such
relationship and consideration applies.
This Agreement is intended to govern only the relationships between the
Adviser, on the one hand, and the Trust and the Funds, on the other hand, and
(except as specifically provided above in this Paragraph 14) is not intended to
and shall not govern (i) the relationship between the Trust and any Fund or (ii)
the relationships among the respective Funds.
15. Governing Law. This Agreement shall be governed by the laws of the
State of [ ], provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act or the Advisers Act.
16. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby and, to this extent, the provisions
of this Agreement shall be deemed to be severable.
17. Notices. Notices of any kind to be given to the Trust hereunder by
the Adviser shall be in writing and shall be duly given if mailed or delivered
to ___________________Attention: _______; with a copy to Kramer, Levin, Naftalis
& Xxxxxxx, 000 00xx Xxxxxx XX, Xxxxx 0000 Xxxx, Xxxxxxxxxx, X.X. 00000-0000,
Attention: Xxxxx Xxxxxxxxx, Esq., or at such other address or to such individual
as shall be so specified by the Trust to the Adviser. Notices of any kind to be
given to the Adviser hereunder by the Trust shall be in writing and shall be
duly given if mailed or delivered to the Adviser at Potomac Tower, 0000
Xxxxxxxxxx Xxxxxx Xxxxx, Xxxxxxxxx, Xxxxxxxx 00000, Attention: _________________
or at such other address or to such individual as shall be so specified by the
Adviser to the Trust. Notices shall be effective upon delivery.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
written above.
THE FBR FAMILY OF FUNDS FBR MUTUAL FUND ADVISERS, INC.
By:_____________________________ By:____________________________
Name: Name:
Title: Title:
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Schedule A
Name of Fund Fee*
------------ ----
1. FBR Small Cap Financial Fund .90%
2. FBR Financial Services Fund .90%
3. FBR Growth/Value Fund .90%
4. FBR Information Technologies Fund .90%
--------------------
* As a percentage of average daily net assets. Note, however, that the
Adviser shall have the right, but not the obligation, to voluntarily waive
any portion of the advisory fee from time to time.
