INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made this 12 day of October, 1999, by and between Commonfund
Institutional Funds a Delaware business trust (the "Company"), Commonfund Asset
Management Company, a Delaware Corporation (the "Investment Manager"), and
Western Asset Management Company, LLP (the "Sub-Adviser").
WHEREAS, the Company is an open-end, management investment company
registered under the Investment Company Act of 1940, as amended, which may
consist of several series, each having its own investment policies; and
WHEREAS, one of those series is the Commonfund Short Duration Fund (the
"Fund"); and
WHEREAS, the Company has entered into an investment advisory agreement with
the Investment Manager pursuant to which the Investment Manager will act as
investment manager to the Fund; and
WHEREAS, the Investment Manager, acting with the approval of the Company,
wishes to retain the Sub-Adviser to render discretionary investment advisory
services with respect to that portion of the Fund that may be allocated by the
Investment Manager for management by the Sub-Adviser from time to time (together
with all income earned on those assets and all realized and unrealized capital
appreciation related to those assets (collectively, the "Managed Assets"), and
the Sub-Adviser is willing to render such services.
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. Duties of Sub-Adviser. The Sub-Adviser shall manage the investment and
reinvestment of the Managed Assets and determine in its discretion, the
securities and other property to be purchased or sold and the portion of the
Managed Assets to retain in cash. The Sub-Adviser shall review all proxy
solicitation materials and shall exercise any voting rights associated with
securities comprising the Managed Assets in the best interests of the Fund and
its shareholders. The Sub-Adviser shall provide the Investment Manager and the
Company with records concerning the Sub-Adviser's activities that the Company is
required to maintain, and to render regular reports to the Investment Manager
and to the Company concerning the Sub-Adviser's discharge of the foregoing
responsibilities.
The Sub-Adviser shall discharge the foregoing responsibilities subject to
the written instructions and directions of the Company and its Board of
Directors and their agents, including the officers of the Fund and the
Investment Manager, and in compliance with (i) such policies as the Company may
from time to time establish and communicate to the Sub-Adviser,(ii) the
objectives, policies, and limitations for the Short Duration Fund set forth in
the Prospectus and Statement of Additional Information as those documents may
from time to time be amended or supplemented from time to time and delivered to
the Sub-Adviser (the "Prospectus and Statement of Additional Information"),(iii)
the Declaration of Trust of the Company, and (iv) applicable laws and
regulations including the Investment Company Act of 1940 (the "40 Act") and the
Internal Revenue Code of 1986. If a conflict in policies or guidelines
referenced herein occurs, the Prospectus and Statement of Additional Information
shall control.
The Sub-Adviser agrees to perform such duties at its own expense and to
provide the office space, furnishings and equipment and the personnel required
by it to perform the services on the terms and for the compensation provided
herein. The Sub-Adviser will not, however, pay for the cost of securities,
commodities, and other investments (including brokerage commissions and other
transaction charges, if any) purchased or sold for the Fund, nor will the
Sub-Adviser bear any expenses that would result in the Company's inability to
qualify as a regulated investment company under provisions of the Internal
Revenue Code.
2. Duties of Investment Manager. The Investment Manager shall continue to
have responsibility for all services to be provided to the Fund pursuant to the
Advisory Agreement between it and the Company and shall oversee and review the
Sub-Adviser's performance under this Agreement
The Investment Manager shall furnish to the Sub-Adviser current and
complete copies of the Declaration of Trust and By-laws of the Company, and the
current Prospectus and Statement of Additional Information as those documents
may be amended from time to time.
3. Custody, Delivery and Receipt of Securities. The Fund shall designate
one or more custodians to hold the Managed Assets. The custodians, as so
designated, will be responsible for the custody, receipt and delivery of
securities and other assets of the Fund including the Managed Assets, and the
Sub-Adviser shall have no authority, responsibility or obligation with respect
to the custody, receipt or delivery of securities or other assets of the Fund
including the Managed Assets. In the event that any cash or securities of the
Fund are delivered to the Sub-Adviser, it will promptly deliver the same over to
the custodian for the benefit of and in the name of the Fund.
Unless otherwise required by local custom, all securities transactions for
the Managed Assets will be consummated by payment to or delivery by the Fund of
cash or securities due to or from the Managed Assets.
Repurchase agreements including tri-party repurchase agreements and other
trading agreements may be entered into by the Fund acting through designated
officers or agents; custodians under tri-party repurchase agreements will act as
sub-custodians of the Fund.
4. Portfolio Transactions.
(a) Selection of Brokers. The Sub-Adviser is authorized to select the
brokers or dealers that will execute the purchases and sales of portfolio
securities and other property for the Fund in a manner that implements the
policy with respect to brokerage set forth in the Prospectus and Statement of
Additional Information for the Fund or as the Board of Directors or the
Investment Manager may direct from time to time and conformity with federal
securities laws.
In executing Fund transactions and selecting brokers or dealers, the
Sub-Adviser will use its best efforts to seek on behalf of the Fund the best
overall terms available. In assessing the best overall terms available for any
transaction, the Sub-Adviser shall consider all factors that 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, and
the reasonableness of the commission, if any, both for the specific transaction
and on a continuing basis. In evaluating the best overall terms available, and
in selecting the broker-dealer to execute a particular transaction, the
Sub-Adviser may also consider the brokerage and research services provided (as
those terms are defined in Section 28(e) of the Securities Exchange Act of
1934). Consistent with any guidelines established by the Board of Directors and
communicated to the Sub-Adviser, the Sub-Adviser is authorized to pay to a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for the Fund that is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if, but only if, the Sub-Adviser determines in good faith that
such commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer viewed in terms of that
particular transaction or terms of the overall responsibilities of the
Sub-Adviser to the Fund. In addition, the Sub-Adviser is authorized to allocate
purchase and sale orders for securities to brokers or dealers (including brokers
and dealers that are affiliated with the Investment Manager, Sub-Adviser or the
Company's principal underwriter) to take into account the sale of shares of the
Company if the Sub-Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified firms. In
no instance, however, will Fund assets be purchased from or sold to the
Investment Manager, Sub-Adviser, the Company's principal underwriter, or any
affiliated person of either the Company, the Investment Manager or the principal
underwriter, acting as principal in the transaction, except to the extent
permitted by the Securities and Exchange Commission ("SEC") and the 1940 Act.
b) Aggregating Orders. The Fund agrees that Sub-Adviser may aggregate
orders for purchase or sale of Managed Assets with similar orders being made
concurrently for other accounts managed by Sub-Adviser, if, in Sub-Adviser's
reasonable judgment, such aggregation shall result in an overall economic
benefit to the Fund, taking into consideration the transaction price, brokerage
commission and other expenses. The Fund acknowledges that the determination of
such economic benefit to the Fund by Sub-Adviser may represent Sub-Adviser's
evaluation that the Fund is benefited by relatively better purchase or sales
prices, lower commission expenses and beneficial timing of transactions or a
combination of these and other factors. In any single transaction in which
purchases and/or sales of securities of any issuer for the account of the Fund
are aggregated with other accounts managed by Sub-Adviser, the actual prices
applicable to the transaction will be averaged among the accounts for which the
transaction is effected, including the account of Fund.
5. Compensation of the Sub-Adviser. For the services to be rendered by the
Sub-Adviser under this Agreement, the Investment Manager shall pay to the the
Sub-Adviser compensation at the rate specified in Schedule 1 as it may be
amended from time to time. Such compensation shall be paid at the times and on
the terms set forth in Schedule 1. All rights of compensation under this
Agreement for services performed as of the termination date shall survive the
termination of this Agreement. Except as may otherwise be prohibited by law or
regulation (including any then current SEC staff interpretations), the
Sub-Adviser may, in its discretion and from time to time, waive a portion of its
fee.
6. Other Expenses. The Company shall pay all expenses relating to mailing
prospectuses, statements of additional information, proxy solicitation material
and shareholder reports to shareholders.
7. Reports.
(i) The Company and the Sub-Adviser agree to furnish to each other, current
prospectuses, proxy statements, reports to shareholders, certified copies of
financial statements, and such other information with regard to their affairs as
each may reasonably request. The Investment Manager will furnish to the
Sub-Adviser advertising and sales literature or other material prepared for
distribution to Fund shareholders or the public, which refer to the Sub-Adviser
or its clients in any way, prior to the use thereof, and the Investment Manager
shall not use any such materials if the Sub-Adviser reasonably objects in
writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof.
(ii) The Sub-Adviser shall provide to the Fund's custodian, on each
business day, information relating to all transactions in the Managed Assets and
shall provide such information to the Investment Manager upon request. The
Sub-Adviser will make aIl reasonable efforts to notify the Custodian of all
orders to brokers for the Managed Assets by 9:00 am EST on the day following the
trade date and will affirm the trade to the Custodian before the close of
business one business day after the trade date (T + 1).
(iii)The Sub-Adviser will promptly communicate to the Investment Manager
and to the Company such information relating to portfolio transactions as they
may reasonably request.
(iv) The Sub-Adviser shall promptly notify the Company and the Investment
Manager of any financial condition likely to impair the ability of the
Sub-Adviser to fulfill its commitments under this Agreement.
8. Status of Sub-Adviser.The Sub-Adviser is and will continue to be
registered registered as such under the federal Investment Advisers Act of 1940.
The services of the Sub-Adviser to the Company for the Fund are not to be deemed
exclusive, and the Sub-Adviser shall be free to render similar services to
others so long as its services to the Fund are not impaired thereby. The
Sub-Adviser shall be deemed to be an independent contractor and shall, unless
otherwise expressly provided on authorized, have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund.
9. Certain Records. The Sub-Adviser shall maintain all books and records
with records with respect to transactions involving the Managed Assets required
by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule
31a-I under the 1940 Act. The Sub-Adviser shall provide to the Investment
Manager or the Board of Directors such periodic and special and special reports,
balance sheets or financial information, and such other information with regard
to its affairs as the Investment Manager or the Board of Directors may
reasonably request.
The Sub-Adviser shall keep the books and records relating to the Managed
Assets required to be maintained by the Sub-Adviser under this Agreement and
shall timely furnish to the Investment Manager all information relating to the
Sub-Advisers services under this Agreement needed by the Investment Manager to
keep the other books and records of the Fund required by Rule 31a-1 under the
1940 Act. The Sub-Adviser shall also furnish to the Investment Manager any other
information relating to the Managed Assets that is required to be filed by the
Investment Manager or the Trust with the SEC or sent to shareholders under the
1940 Act (including the rules adopted thereunder) or any exemptive or other
relief that the Investment Manager or the Trust obtains from the SEC. The
Sub-Adviser agrees that all records that it maintains on behalf of the Fund are
property of the Fund and the Sub-Adviser will surrender promptly to the Fund any
of such records upon the Fund's request; provided, however, that the Sub-Adviser
may retain a copy of such records. In addition, for the duration of this
Agreement, the Sub-Adviser shall preserve for the periods prescribed by Rule
31a-2 under the 1940 Act any such records as are required to be maintained by it
pursuant to this Agreement, and shall transfer said records to any successor
sub-adviser upon the termination of this Agreement (or, if there is no successor
sub-adviser, to the Investment Manager).
10. Limitation of Liability of Sub-Adviser. The duties of the Sub-Adviser
shall be confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against the Sub-Adviser hereunder. The Sub-Adviser
shall not be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in carrying out its
duties hereunder, except a loss resulting from willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable state law or Federal securities law
which cannot be waived or modified hereby. (As used in this Paragraph 9, the
term "Sub-Adviser" shall include directors, officers, employees and other
corporate agents of the Sub-Adviser as well as that entity itself).
11. Permissible Interests. Agents and shareholders of the Company may be
interested in the Sub-Adviser (or any successor thereof) as directors, partners,
officers, or shareholders, or otherwise; directors, partners, officers, agents,
and shareholders of the Sub-Adviser are or may be interested in the Company as
shareholders or otherwise; and the Sub-Adviser (or any successor) is or may be
interested in the Company as a shareholder or otherwise. In addition, brokerage
transactions for the Company may be effected through affiliates of the
Sub-Adviser if approved by the Board of Directors of the Company subject to the
rules and regulations of the Securities and Exchange Commission.
12. Duration and Termination. This Agreement shall be come effective upon
its approval by the Board of Directors of the Company and by a vote of the
majority of the outstanding voting securities of the Fund. This Agreement shall
remain in effect until two years from date of execution, and thereafter, for
periods of one year so long as such continuance thereafter is specifically
approved at least annually by the vote of a (a) majority of those Directors of
the Company 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 (b) by the Directors of the Company, or by the vote of a majority
of the outstanding voting securities of the Fund; provided, however, that if the
shareholders of the Fund fail to approve the Agreement as provided herein, the
Sub-Adviser may continue to serve hereunder in the manner and to the extent
permitted by the Investment Company Act of 1940 and rules and regulations
thereunder. The foregoing requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the rules and regulations
thereunder.
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of a majority of the Directors of the Company or by vote of a
majority of the outstanding voting securities of the Fund on not less than 30
days nor more than 60 days written notice to the Sub-Adviser, by the Investment
Manager at any time without the payment of a penalty upon 90 days written notice
to the Sub-Adviser, or by the Sub-Adviser at any time without the payment of any
penalty on 90 days written notice to the Investment Manager. This Agreement will
automatically and immediately terminate in the event of its assignment or in the
event of the termination of the Investment Manager's advisory agreement with the
Company. Any termination of this Agreement in accordance with the terms hereof
will not affect the obligations or liabilities accrued prior to termination. Any
notice under this Agreement shall be given in writing, addressed and delivered,
or mailed postpaid, to the other party at any office of such party.
As used in this Section 12, the terms "assignment", "interested persons,"
and a "vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and regulations
thereunder; subject to such exceptions as may be granted by the SEC under said
Act.
13. Notice. Any notice required or permitted to be given by either party to
the other shall be deemed sufficient if sent by registered or certified mail,
postage prepaid, addressed by the party giving notice to the other party at the
last address furnished by the other party to the party giving notice. At the
outset, such notices shall be delivered to the following addresses:
if to the Company, c/o Commonfund Asset Management Company, 000 Xxxx Xxxx
Xxxx, Xxxxxxxx, XX. attn: President, if to the Investment Manager, at the
foregoing address, and if to the Sub-Adviser at Western Asset Management
Company, 000 Xxxx Xxxxxxxx Xxxxxxxxx, 0xx Xxxxx, Xxxxxxxx, Xxxxxxxxxx 00000,
Attention Xxxxx Xxxxxx.
14. 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.
15. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of New York and the applicable provisions of the 1940 Act. To
the extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the 1940 Act, the
latter shall control.
16. Miscellaneous. This instrument constitutes the sole and only agreement
of the parties to it relating to its object; any prior agreements, promises or
representations not expressly set forth in this Agreement are of no force and
effect. No waiver or modification of this Agreement shall be effective unless
reduced to writing and signed by the party to be charged. No failure to exercise
and no delay in exercising on the part of any party hereto of any right, remedy,
power or privilege hereunder shall operate as a waiver thereof. Except as set
forth in Section 12, this Agreement binds and inures to the benefit of parties,
their successors and assigns. This Agreement may be executed in more than one
counterpart each of which shall be deemed an original and both of which, taken
together, shall be deemed to constitute one and the same instrument. A copy of
the Declaration of Trust of the Company is on file with the Secretary of State
of the State of Delaware and notice is hereby given that the obligations under
this instrument are not binding on any of the Directors, officers or
shareholders of the Company. Where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is altered by rule, regulation or
order of the SEC, whether of special or general application, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.
COMMONFUND INSTITUTIONAL FUNDS
By:
Attest:
COMMONFUND ASSET MANAGEMENT COMPANY
By:
Attest:
WESTERN ASSET MANAGEMENT COMPANY
By:
Attest:
Schedule 1
to the
Investment Sub-Advisory Agreement
dated October 12, 1999
among
Commonfund Institutional Funds
Commonfund Asset Management Company
and
Western Asset Management Company
Fees
Daily Accrual
Fees shall be accrued each day by applying to the Net Asset Value of the Managed
Assets at the end of that day, the daily rate, using a 365 day year, equivalent
to the following:
Rate
Managed Assets($) (% Per Annum)
Current Amount 0.055%
Quarterly Payment
Fees shall be paid within 30 days following the end of each calendar quarter.
COMMONFUND ASSET WESTERN ASSET MANAGEMENT
MANAGEMENT COMPANY COMPANY, LLP
By: /s/Xxxx X. Xxxxxx By:
Name: Xxxx X. Xxxxxx Name:
Title: President and CIO Title:
Date of this Schedule 1: October 12, 1999
Schedule 1
Investment Restrictions
The following investment restrictions shall in every case be binding on the
Sub-Adviser unless otherwise agreed by prior written consent of Commonfund Asset
Management Company.
The restrictions shall not be construed to permit investments or
transactions that do not fall within the Investment Program set forth in the
Prospectus and Statement of Additional Information.
A. Eligible Investments
Investments must be of the following type:
1. Obligations of, or fully guaranteed as to both principal and interest
by, the United States of America.
2. Obligations of, or fully guaranteed as to both principal and interest
by, the following agencies and organizations:
a.) Federal Home Loan Banks
Federal Home Loan Mortgage Corporation
Federal National Mortgage Association
b.) Asian Development Bank
Export-Import Bank
Federal Farm Credit Bank
Inter-American Development Bank
International Bank for Reconstruction and Development
Student Loan Marketing Association
Tennessee Valley Authority
3. Obligations of commercial banks and bank holding companies, corporations, or
other institutions, wherever organized provided that all such shall be
subject to the provisions of paragraphs A.6 and A.7 below
4. Obligations of any entities other than those specified in paragraphs
A.1 through A.3 above, including mortgage pass-through, asset-backed
securities, Collateralized Mortgage Obligations (C.M.O.'s) or Real Estate
Mortgage Investment Conduits (R.E.M.I.C's); provided that all obligations
described in this paragraph A.4 shall be further subject to the provision
of paragraph A.6 below.
5. Repurchase agreements with banks or broker/dealers subject to the provision
of paragraph D below.
6. The credit ratings applicable to all issues purchased under paragraphs A.3,
A.4, and A.5 above shall be equal to or better than the following ratings of
these sources:
Duff & Xxxxxx, Inc.: DP-1/A-
Fitch/IBCA: F-1/A-
Xxxxx'x Investors Service: X-0(XXXX-0,
XXX-0)/X0
Standard & Poor's Corporation: A-1/A-
Thomson BankWatch: TBW1/A-
Two approved rating agencies' ratings must be used in determining
eligibility; at least one of the rating services shall be Fitch,
Moody's, Standard & Poor's or Thomson BankWatch. In the event of a
split rating, Standard & Poor's or Moody's minimum of A-1/P-1 is to be
observed. For securities with legal final maturities of one year or
less, the short term ratings of the underlying credit may be used as a
proxy for measuring the credit requirement.
Downgraded Securities: Securities that fall below minimum credit quality
after acquisition need not be sold in distress but shall be held for a time
determined by the Sub-Adviser in its discretion to permit sale on
commercially reasonable terms.
7. Obligations in the above categories may be either fixed rate or floating
rate. All obligations must be payable in United States Dollars.
B. Ineligible Investments and Investment Practices
Securities not itemized in paragraph A above are not eligible for investment.
Without limiting the generality of this restriction, the following may not be
purchased:
1. Securities that require leveraging of the Managed Assets, i.e., reverse
repurchase agreements and dollar rolls.
2. Securities that exhibit extreme volatility or illiquidity, such as inverse
floaters and mortgage-backed interest-only or principal-only strips.
3. Swap agreements
C. Diversification
1. Obligations specified in paragraph A.1 above may be held without limit.
2. No more than 25% of the Managed Assets, measured at the time of purchase,
may be invested in the securities issued or guaranteed by any one of the
agencies or organizations specified in paragraph A.2 (a) above. No more
than 5% of the Managed Assets, measured at the time of purchase, may be
invested in the securities issued or guaranteed by any one of the agencies
or organizations specified in paragraph A.2 (b) above. These limits apply
in the aggregate to agency debt and guarantees of pass-throughs issued by
an agency or organization. These limits do not apply to debt or pass
throughs that collateralize repurchase agreements.
3. No more than 5% of the Managed Assets, measured at the time of purchase,
may be invested in obligations of any one issuer, except in the case of
securities specified in paragraphs A.1 through A.2 above.
4. No more than 5% of the Managed Assets, measured at the time of a
transaction, may be committed to repurchase agreements with any single
counterparty except for repurchase agreements collateralized with
securities issued or guaranteed by the U.S. Treasury or its agencies. No
more than 10% of the Managed Assets, measured at the time of a transaction
may be committed to repurchase agreements with any single counterparty
collateralized with securities issued or guaranteed by the U.S. Treasury or
its agencies.
5. No more than 50% of the Managed Assets, measured at the time of purchase,
may be committed to repurchase agreements.
6. No more than 50% of the Managed Assets, measured at the time of purchase,
may be committed to tri-party repurchase agreements.
7. No more than 50% of the Managed Assets, measured at the time of purchase,
may be invested in floating-rate obligations with final maturities in
excess of one year; in the case of floating rate asset backed or mortgage
backed securities, final maturity shall be deemed to be average remaining
life.
8. No more than 25% of the Managed Assets, measured at the time of purchase,
may be invested in Collaterized Mortgage Obligations (C.M.O.s) or Real
Estate Mortgage Investment Conduits (R.E.M.l.C.s).
D. Repurchase Agreements
1. Repurchase agreements shall be in writing. Repurchase agreements are
investments of cash by the fund and hence result in the holding of
securities as assets of the Fund subject to resale.
2. Repurchase agreements shall be collaterized in each instance by
securities otherwise eligible for investment subject to the limitation on
final maturity specified in paragraph E.1 below having an initial market
value at least equal to 102% of the amount invested in the repurchase
agreement, including accrued interest. The securities which are the subject
of each repurchase agreement must be delivered to the custodian for the
Fund either physically or in book-entry form and must be marked-to-market
daily to ensure that each repurchase agreement is fully collateralized.
E. Maturity
The annualized monthly variability of the actual total return on the Manage
Assets should be in the range of the variability of total returns on three-month
securities and never to exceed the variability of total returns on one-year
securities. The investment risk of the Managed Assets, as indicated by the
effective duration of the Managed Assets, shall always be within the range of
one day to one year.
1. The final maturity of any single investment shall be no more than 5.5 year
except in the case of securities identified in E.2 below.
2. The effective duration of C.M.O.'s, R.E.M.l.C.'s, mortgage backed and asset
-backed securities should not exceed 5.5 years. In the case of floating
rate securities the time until the next coupon reset shall not exceed 5.5
years. The estimated volatility of any of the securities identified in this
paragraph E.2 shall not at any time exceed the volatility of a Treasury
security with a maturity of 5.5 years as measured by its effective
duration.
