SUB-ADVISORY AGREEMENT
AGREEMENT made this ____ day of ____________, 1998, by and between
XXXXXXX XXXXXX INVESTMENTS, INC., a Delaware corporation (the "Adviser") and
DREMAN VALUE MANAGEMENT, L.L.C., a Delaware limited liability company (the
"Sub-Adviser").
WHEREAS, XXXXXX EQUITY TRUST, a Massachusetts business trust (the
"Fund") is a management investment company registered under the Investment
Company Act of 1940 ("the Investment Company Act");
WHEREAS, the Fund has retained the Adviser to render to it investment
advisory and management services with regard to the Fund, including the series
known as the Xxxxxx-Xxxxxx Financial Services Fund (the "Financial Services
Series"), pursuant to an Investment Management Agreement (the "Management
Agreement"); and
WHEREAS, the Adviser desires at this time to retain the Sub-Adviser to
render investment advisory and management services for the Financial Services
Series and the Sub-Adviser is willing to render such services;
NOW THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. Appointment of Sub-Adviser.
(a) The Adviser hereby employs the Sub-Adviser to manage the
investment and reinvestment of the assets of the Financial Services Series in
accordance with the applicable investment objectives, policies and limitations
and subject to the supervision of the Adviser and the Board of Trustees of the
Fund for the period and upon the terms herein set forth, and to place orders for
the purchase or sale of portfolio securities for the Financial Services Series
account with brokers or dealers selected by the Sub-Adviser; and, in connection
therewith, the Sub-Adviser is authorized as the agent of the Financial Services
Series to give instructions to the Custodian and Accounting Agent of the Fund as
to the deliveries of securities and payments of cash for the account of the
Financial Services Series. In
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connection with the selection of such brokers or dealers and the placing of such
orders, the Sub-Adviser is directed to seek for the Financial Services Series
best execution of orders. Subject to such policies as the Board of Trustees of
the Fund determines and subject to satisfying the requirements of Section 28(e)
of the Securities Exchange Act of 1934, the Sub-Adviser 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 Financial Services Series
to pay a broker or dealer an amount of commission for effecting a securities
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Sub-Adviser determined 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 Sub-Adviser's
overall responsibilities with respect to the clients of the Sub-Adviser as to
which the Sub-Adviser exercises investment discretion. The Adviser recognizes
that all research services and research that the Sub-Adviser receives are
available for all clients of the Sub-Adviser, and that the Financial Services
Series and other clients of the Sub-Adviser may benefit thereby. The investment
of funds shall be subject to all applicable restrictions of the Agreement and
Declaration of Trust and By-Laws of the Fund as may from time to time be in
force to the extent the same are provided the Sub-Adviser.
(b) The Sub-Adviser accepts such employment and agrees during
the period of this Agreement to render such investment management services in
accordance with the applicable investment objectives, policies and limitations
set out in the Fund's prospectus and Statement of Additional Information, as
amended from time to time, to the extent the same are provided the Sub-Adviser,
to furnish related office facilities and equipment and clerical, bookkeeping and
administrative services for the Financial Services Series, and to assume the
other obligations herein set forth for the compensation herein provided. The
Sub-Adviser shall assume and pay all of the costs and expenses of performing its
obligations under this Agreement. The Sub-Adviser shall for all purposes herein
provided be deemed to be an independent contractor and, unless otherwise
expressly provided
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or authorized, shall have no authority to act for or represent the Fund, the
Financial Services Series or the Adviser in any way or otherwise be deemed an
agent of the Fund. the Financial Services Series or the Adviser.
(c) The Sub-Adviser will keep the Adviser, for itself and on
behalf of the Fund, informed of developments materially affecting the Fund or
the Financial Services Series and shall, on the Sub-Adviser's own initiative and
as reasonably requested by the Adviser, for itself and on behalf of the Fund,
furnish to the Adviser from time to time whatever information the Adviser
reasonably believes appropriate for this purpose.
(d) The Sub-Adviser shall provide the Adviser with such
investment portfolio accounting and shall maintain and provide such detailed
records and reports as the Adviser may from time to time reasonably request,
including without limitation, daily processing of investment transactions and
periodic valuations of investment portfolio positions as required by the
Adviser, monthly reports of the investment portfolio and all investment
transactions and the preparation of such reports and compilation of such data as
may be required by the Adviser to comply with the obligations imposed upon it
under the Management Agreement. Sub-Adviser agrees to install in its offices
computer equipment or software, as provided by the Adviser at its expense, for
use by the Sub-Adviser in performing its duties under this Sub-Advisory
Agreement, including inputting on a daily basis that day's portfolio
transactions in the Financial Services Series.
(e) The Sub-Adviser shall maintain and enforce adequate
security procedures with respect to all materials, records, documents and data
relating to any of its responsibilities pursuant to this Agreement including all
means for the effecting of securities transactions.
(f) The Sub-Adviser agrees that it will provide to the Adviser
or the Fund promptly upon request reports and copies of such of its investment
records and ledgers with respect to the Financial Services Series as appropriate
to assist the Adviser and the Fund in monitoring compliance with the Investment
Company Act and the Investment Advisers Act of 1940 (the "Advisers Act"), as
well as other applicable laws. The Sub-Adviser will furnish
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the Fund's Board of Trustees such periodic and special reports with respect to
the Financial Services Series as the Adviser or the Board of Trustees may
reasonably request, including statistical information with respect to the
Financial Services Series' securities.
(g) In compliance with the requirements of Rule 31a-3 under
the Investment Company Act, the Sub-Adviser hereby agrees that any records that
it maintains for the Fund are the property of the Fund and further agrees to
surrender promptly any such records upon the Fund's or the Adviser's request,
although the Sub-Adviser may, at the Sub-Adviser's own expense, make and retain
copies of such records. The Sub-Adviser further agrees to preserve for the
periods prescribed by Rule 3la-2 under the Investment Company Act any records
with respect to the Sub-Adviser's duties hereunder required to be maintained by
Rule 3la-1 under the Investment Company Act to the extent that the Sub-Adviser
prepares and maintains such records pursuant to this Agreement and to preserve
the records required by Rule 204-2 under the Advisers Act for the period
specified in that Rule.
(h) The Sub-Adviser agrees that it will immediately notify the
Adviser and the Fund in the event that the Sub-Adviser: (i) becomes subject to a
statutory disqualification that prevents the Sub-Adviser from serving as an
investment adviser pursuant to this Agreement; or (ii) is or expects to become
the subject of an administrative proceeding or enforcement action by the United
States Securities and Exchange Commission ("SEC") or other regulatory authority.
(i) The Sub-Adviser agrees that it will immediately forward,
upon receipt, to the Adviser, for itself and as agent for the Fund, any
correspondence from the SEC or other regulatory authority that relates to the
Financial Services Series.
(j) The Sub-Adviser acknowledges that it is an "investment
adviser" to the Fund within the meaning of the Investment Company Act and the
Advisers Act.
(k) The Sub-Adviser shall be responsible for maintaining an
appropriate compliance program to ensure that the services provided by it under
this Agreement are performed in a
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manner consistent with applicable laws and the terms of this Agreement.
Sub-Adviser agrees to provide such reports and certifications regarding its
compliance program as the Adviser or the Fund shall reasonably request from time
to time. Furthermore, the Sub-Adviser shall maintain and enforce a Code of
Ethics which in form and substance is consistent with industry norms as changed
from time to time. Sub-Adviser agrees to allow the Board of Trustees of the Fund
to review its Code of Ethics upon request. Sub-Adviser agrees to report to the
Adviser on a quarterly basis any violations of the Code of Ethics of which its
senior management becomes aware.
2. Compensation.
For the services and facilities described herein, the Adviser
will pay to the Sub-Adviser, 15 days after the end of each calendar month, the
unpaid balance of a fee equal to 1/12 of .240 of 1 percent of the average daily
net assets as defined below of the Fund for such month; provided that, for any
calendar month during which the average of such values exceeds $250,000,000, the
fee payable for that month based on the portion of the average of such values in
excess of $250,000,000 shall be 1/12 of .230 of 1 percent of such portion;
provided that, for any calendar month during which the average of such values
exceeds $1,000,000,000, the fee payable for that month based on the portion of
the average of such values in excess of $1,000,000,000 shall be 1/12 of .224 of
1 percent of such portion; provided that, for any calendar month during which
the average of such values exceeds $2,500,000,000, the fee payable for that
month based on the portion of the average of such values in excess of
$2,500,000,000 shall be 1/12 of .218 of 1 percent of such portion; provided
that, for any calendar month during which the average of such values exceeds
$5,000,000,000, the fee payable for that month based on the portion of the
average of such values in excess of $5,000,000,000 shall be 1/12 of .208 of 1
percent of such portion; provided that, for any calendar month during which the
average of such values exceeds $7,500,000,000, the fee payable for that month
based on the portion of the average of such values in excess of $7,500,000,000
shall be 1/12 of .205 of 1 percent of such portion; provided that, for any
calendar month during which the average of such values exceeds $10,000,000,000,
5
the fee payable for that month based on the portion of the average of such
values in excess of $10,000,000,000 shall be 1/12 of .202 of 1 percent of such
portion; and provided that, for any calendar month during which the average of
such values exceeds $12,500,000,000, the fee payable for that month based on the
portion of the average of such values in excess of $12,500,000,000 shall be 1/12
of .198 of 1 percent of such portion.
For the month and year in which this Agreement becomes
effective or terminates, there shall be an appropriate proration on the basis of
the number of days that the Agreement is in effect during the month and year,
respectively.
3. Net Asset Value. The net asset value for the Financial Services
Series shall be calculated as the Board of Trustees of the Fund may determine
from time to time in accordance with the provisions of the Investment Company
Act. On each day when net asset value is not calculated, the net asset value of
the Financial Services Series shall be deemed to be the net asset value as of
the close of business on the last day on which such calculation was made for the
purpose of the foregoing computations.
4. Duration and Termination.
(a) This Agreement shall become effective with respect to the
Financial Services Series on the date hereof and shall remain in full force
until February 1, 2003, unless sooner terminated or not annually approved as
hereinafter provided. Notwithstanding the foregoing, this Agreement shall
continue in force through February 1, 2003, and from year to year thereafter,
only as long as such continuance is specifically approved at least annually and
in the manner required by the Investment Company Act and the rules and
regulations thereunder, with the first annual renewal to be coincident with the
next renewal of the Management Agreement.
(b) This Agreement shall automatically terminate in the event
of its assignment or in the event of the termination of the Management
Agreement. In addition, Adviser has the right to terminate this Agreement upon
immediate notice if the Sub-Adviser
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becomes statutorily disqualified from performing its duties under this Agreement
or otherwise is legally prohibited from operating as an investment adviser.
(c) This Agreement may be terminated at any time, without the
payment by the Fund of any penalty, by the Board of Trustees of the Fund, or by
vote of a majority of the outstanding voting securities of the Financial
Services Series, or by the Adviser. The Fund may effect termination of this
Agreement by action of the Board of Trustees of the Fund or by vote of a
majority of the outstanding voting securities of the Financial Services Series
on sixty (60) days written notice to the Adviser and the Sub-Adviser. The
Adviser may effect termination of this Agreement on sixty (60) days written
notice to the Sub-Adviser.
(d) Sub-Adviser may not terminate this Agreement prior to the
third anniversary of the date of this Agreement. Sub-Adviser may terminate this
Agreement effective on or after the third anniversary of the date of this
Agreement upon ninety (90) days written notice to the Adviser.
(e) The terms "assignment" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the
Investment Company Act and the rules and regulations thereunder.
5. Representations and Warranties. The Sub-Adviser hereby represents
and warrants as follows:
(a) The Sub-Adviser is registered with the SEC as an
investment adviser under the Advisers Act, and such registration is current,
complete and in full compliance with all material applicable provisions of the
Advisers Act and the rules and regulations thereunder;
(b) The Sub-Adviser has all requisite authority to enter into,
execute, deliver and perform the Sub-Adviser's obligations under this Agreement;
(c) The Sub-Adviser's performance of its obligations under
this Agreement does not conflict with any law, regulation or order to which the
Sub-Adviser is subject; and
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(d) The Sub-Adviser has reviewed the portion of (i) the
registration statement filed with the SEC, as amended from time to time for the
Fund ("Registration Statement"), and (ii) the Fund's prospectus and supplements
thereto, in each case in the form received from the Adviser with respect to the
disclosure about the Sub-Adviser and the Financial Services Series of which the
Sub-Adviser has knowledge (the "Sub-Adviser and Financial Services Information")
and except as advised in writing to the Adviser such Registration Statement,
prospectus and any supplement contain, as of its date, no untrue statement of
any material fact of which Sub-Adviser has knowledge and do not omit any
statement of a material fact of which Sub-Adviser has knowledge which was
required to be stated therein or necessary to make the statements contained
therein not misleading.
6. Covenants. The Sub-Adviser hereby covenants and agrees that, so long
as this Agreement shall remain in effect:
(a) The Sub-Adviser shall maintain the Sub-Adviser's
registration as an investment adviser under the Advisers Act, and such
registration shall at all times remain current, complete and in full compliance
with all material applicable provisions of the Advisers Act and the rules and
regulations thereunder;
(b) The Sub-Adviser's performance of its obligations under
this Agreement shall not conflict with any law, regulation or order to which the
Sub-Adviser is then subject;
(c) The Sub-Adviser shall at all times comply in all material
respects with the Advisers Act and the Investment Company Act, and all rules and
regulations thereunder, and all other applicable laws and regulations, and the
Registration Statement, prospectus and any supplement and with any applicable
procedures adopted by the Fund's Board of Trustees, provided that such
procedures are substantially similar to those applicable to similar funds for
which the Board of Trustees of the Fund is responsible and that such procedures
are identified in writing to the Sub-Adviser;
(d) The Sub-Adviser shall promptly notify Adviser and the Fund
upon the occurrence of any event that might disqualify or prevent the
Sub-Adviser from performing its duties under this
8
Agreement. The Sub-Adviser further agrees to notify Adviser of any changes that
would cause the Registration Statement or prospectus for the Fund to contain any
untrue statement of a material fact or to omit to state a material fact which is
required to be stated therein or is necessary to make the statements contained
therein not misleading, in each case relating to Sub-Adviser and Financial
Services Information; and
(e) For the entire time this Agreement is in effect and for a
period of two years thereafter, the Sub-Adviser shall maintain a claims made
bond issued by a reputable fidelity insurance company against larceny and
embezzlement, covering each officer and employee of Sub-Adviser, at a minimum
level of $2 million which provide coverage for acts or alleged acts which
occurred during the period of this Agreement.
7. Use of Names.
(a) The Sub-Adviser acknowledges and agrees that the names
Xxxxxx, Zurich and Xxxxxxx, and abbreviations or logos associated with those
names, are the valuable property of Adviser and its affiliates; that the Fund,
Adviser and their affiliates have the right to use such names, abbreviations and
logos; and that the Sub-Adviser shall use the names Zurich, Xxxxxx and Xxxxxxx,
and associated abbreviations and logos, only in connection with the
Sub-Adviser's performance of its duties hereunder. Further, in any communication
with the public and in any marketing communications of any sort, Sub-Adviser
agrees to obtain prior written approval from Adviser before using or referring
to Xxxxxx Value Fund, Kemper, Scudder, Zurich or Xxxxxx-Xxxxxx Financial
Services Fund or any abbreviations or logos associated with those names;
provided that nothing herein shall be deemed to prohibit the Sub-Adviser from
referring to the performance of the Xxxxxx-Xxxxxx Financial Services Fund in the
Sub-Adviser's marketing material as long as such marketing material does not
constitute "sales literature or "advertising" for the Financial Services Series,
as those terms are used in the rules, regulations and guidelines of the SEC and
the National Association of Securities Dealers, Inc.
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(b) Adviser acknowledges that "Dreman" is distinctive in
connection with investment advisory and related services provided by the
Sub-Adviser, the "Dreman" name is a property right of the Sub-Adviser, and the
"Dreman" name as used in the name of the Financial Services Series is understood
to be used by the Fund upon the conditions hereinafter set forth; provided that
the Fund may use such name only so long as the Sub-Adviser shall be retained as
the investment sub-adviser of the Financial Services Series pursuant to the
terms of this Agreement.
(c) Adviser acknowledges that the Fund and its agents may use
the "Dreman" name in the name of the Financial Services Series for the period
set forth herein in a manner not inconsistent with the interests of the
Sub-Adviser and that the rights of the Fund and its agents in the "Dreman" name
are limited to their use as a component of the Financial Services Series name
and in connection with accurately describing the activities of the Financial
Services Series, including use with marketing and other promotional and
informational material relating to the Financial Services Series. In the event
that the Sub-Adviser shall cease to be the investment sub-adviser of the
Financial Services Series, then the Fund at its own or the Adviser's expense,
upon the Sub-Adviser's written request: (i) shall cease to use the Sub-Adviser's
name as part of the name of the Financial Services Series or for any other
commercial purpose (other than the right to refer to the Financial Services
Series' former name in the Fund's Registration Statement, proxy materials and
other Fund documents to the extent required by law and, for a reasonable period
the use of the name in informing others of the name change); and (ii) shall use
its best efforts to cause the Fund's officers and directors to take any and all
actions which may be necessary or desirable to effect the foregoing and to
reconvey to the Sub-Adviser all rights which the Fund may have to such name.
Adviser agrees to take any and all reasonable actions as may be necessary or
desirable to effect the foregoing and Sub-Adviser agrees to allow the Fund and
its agents a reasonable time to effectuate the foregoing.
(d) The Sub-Adviser hereby agrees and consents to the use of
the Sub-Adviser's name upon the foregoing terms and conditions.
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8. Standard of Care. Except as may otherwise be required by law, and
except as may be set forth in paragraph 9, the Sub-Adviser shall not be liable
for any error of judgment or of law or for any loss suffered by the Fund, the
Financial Services Series or the Adviser in connection with the matters to which
this Agreement relates, except loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Sub-Adviser in the performance of
its obligations and duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
9. Indemnifications.
(a) The Sub-Adviser agrees to indemnify and hold harmless
Adviser and the Fund against any losses, expenses, claims, damages or
liabilities (or actions or proceedings in respect thereof), to which Adviser or
the Fund may become subject arising out of or based on the breach or alleged
breach by the Sub-Adviser of any provisions of this Agreement or any wrongful
action or alleged wrongful action by the Sub-Adviser; provided, however, that
the Sub-Adviser shall not be liable under this paragraph in respect of any loss,
expense, claim, damage or liability to the extent that a court having
jurisdiction shall have determined by a final judgment, or independent counsel
agreed upon by the Sub-Adviser and the Adviser or the Fund, as the case may be,
shall have concluded in a written opinion, that such loss, expense, claim,
damage or liability resulted primarily from the Adviser's or the Fund's willful
misfeasance, bad faith or gross negligence or by reason of the reckless
disregard by the Adviser or the Fund of its duties. The foregoing
indemnification shall be in addition to any rights that the Adviser or the Fund
may have at common law or otherwise. The Sub-Adviser's agreements in this
paragraph shall, upon the same terms and conditions, extend to and inure to the
benefit of each person who may be deemed to control the Adviser or the Fund, be
controlled by the Adviser or the Fund, or be under common control with the
Adviser or the Fund and their affiliates, trustees, officers, employees and
agents. The Sub-Adviser's agreement in this paragraph shall also extend to any
of the Fund's, Financial Services Series', and Adviser's successors or the
successors of
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the aforementioned affiliates, trustees, officers, employees or agents.
(b) The Adviser agrees to indemnify and hold harmless the Sub-Adviser
against any losses, expenses, claims, damages or liabilities (or actions or
proceedings in respect thereof), to which the Sub-Adviser may become subject
arising out of or based on the breach or alleged breach by the Adviser of any
provisions of this Agreement or the Management Agreement, or any wrongful action
or alleged wrongful action by the Adviser or its affiliates in the distribution
of the Fund's shares, or any wrongful action or alleged wrongful action by the
Fund other than wrongful action or alleged wrongful action that was caused by
the breach by Sub-Adviser of the provisions of this Agreement; provided,
however, that the Adviser shall not be liable under this paragraph in respect of
any loss, expense, claim, damage or liability to the extent that a court having
jurisdiction shall have determined by a final judgment, or independent counsel
agreed upon by the Adviser and the Sub-Adviser shall have concluded in a written
opinion, that such loss, expense, claim, damage or liability resulted primarily
from the Sub-Adviser's willful misfeasance, bad faith or gross negligence or by
reason of the reckless disregard by the Sub-Adviser of its duties. The foregoing
indemnification shall be in addition to any rights that the Sub-Adviser may have
at common law or otherwise. The Adviser's agreements in this paragraph shall,
upon the same terms and conditions, extend to and inure to the benefit of each
person who- may be deemed to control the Sub-Adviser, be controlled by the
Sub-Adviser or be under common control with the Sub-Adviser and to each of the
Sub-Adviser's and each such person's respective affiliates, trustees, officers,
employees and agents. The Adviser's agreements in this paragraph shall also
extend to any of the Sub-Adviser's successors or the successors of the
aforementioned affiliates, trustees, officers, employees or agents.
(c) Promptly after receipt by a party indemnified under
paragraphs 9(a) and 9(b) above of notice of the commencement of any action,
proceeding, or investigation for which indemnification will be sought, such
indemnified party shall promptly notify the indemnifying party in writing; but
the
12
omission so to notify the indemnifying party shall not relieve it from any
liability which it may otherwise have to any indemnified party unless such
omission results in actual material prejudice to the indemnifying party. In case
any action or proceeding shall be brought against any indemnified party, and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, individually or
jointly with any other indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of any action or proceeding, the indemnifying party shall not be liable
to the indemnified party for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof other than
reasonable costs of investigation. If the indemnifying party does not elect to
assume the defense of any action or proceeding, the indemnifying party on a
monthly basis shall reimburse the indemnified party for the reasonable legal
fees and other costs of defense thereof. Regardless of whether or not the
indemnifying party shall have assumed the defense of any action or proceeding,
the indemnified party shall not settle or compromise the action or proceeding
without the prior written consent of the indemnifying party, which shall not be
unreasonably withheld.
10. Survival. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder shall not
be thereby affected.
11. Notices. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.
12. Governing Law. This Agreement shall be construed in accordance with
applicable federal law and the laws of the State of New York.
13. Miscellaneous.
(a) The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any
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of the provisions hereof or otherwise affect their construction or effect.
(b) Terms not defined herein shall have the meaning set forth
in the Fund's prospectus.
(c) This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Adviser and the Sub-Adviser have caused this
Agreement to be executed as of the day and year first above written.
XXXXXXX XXXXXX INVESTMENTS, INC.
By:
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Title: Executive Vice President, Dir. of Marketing
DREMAN VALUE MANAGEMENT, L.L.C.
By:
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Title: Chairman
FOR THE PURPOSE OF ACCEPTING ITS OBLIGATIONS UNDER
SECTION 7 HEREIN ONLY
XXXXXX EQUITY TRUST
By:
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Title: President
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