SUB-ADVISORY AGREEMENT
THIS
AGREEMENT
is made
and entered into as of this ___ day of _________, 2007, by and among Alternative
Investment Partners, LLC, a Delaware limited liability company (the “Advisor”),
Pacificor, LLC, a Delaware limited liability company (the “Sub-Advisor”), and
the Underlying Funds Trust, a Delaware statutory trust (the “Trust”) on behalf
of its series, Deep Value Fixed Income - 1 (the “Fund”).
WHEREAS,
the
Trust
and each series comprising the Trust, including the Fund (the “Funds”), have
been formed for the purpose of creating a fund-of-funds structure with their
affiliate, AIP Alternative Strategies Funds, a Delaware statutory trust (“AIP
Funds”), in which each series of AIP Funds, including any future series of AIP
Funds, invests 100% of its assets in certain or all of the Funds;
and
WHEREAS,
by
virtue of the fund-of-funds structure, the Sub-Advisor will indirectly serve
as
a sub-advisor to any series of AIP Funds which invests in the Fund;
and
WHEREAS,
the
Trust, and therefore the Fund, is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the”
1940 Act”); and
WHEREAS,
the
Advisor has been appointed investment advisor to the Fund, pursuant to an
Investment Advisory Agreement dated April 28, 2006, which has been approved
by
the Fund’s Board of Trustees (the “Advisory Agreement”); and
WHEREAS,
the
Advisor shall have in its sole discretion the decision as to the percentage
of
the Fund’s net assets to be contributed into or subtracted from the Fund and to
be advised by the Sub-Advisor; and
WHEREAS,
the
Advisor and the Trust desire to retain the Sub-Advisor to assist the Advisor
in
providing a continuous investment program for a portion of the Fund’s assets
(designated herein as a “Separate Account”) and the Sub-Advisor is willing to do
so; and
WHEREAS,
the
Board of Trustees of the Trust has approved this Agreement, and the Sub-Advisor
is willing to furnish such services upon the terms and conditions herein
set
forth.
NOW,
THEREFORE,
in
consideration of the premises and mutual covenants herein contained, it is
agreed between the parties hereto as follows:
1.
Appointment.
The
Advisor and the Trust hereby appoint the Sub-Advisor to serve as sub-advisor
to
the Advisor with respect to the Separate Account. Intending to be legally
bound,
the Sub-Advisor accepts such appointment and agrees to render the services
herein set forth for the compensation herein provided.
2.
Advisory
Services.
Subject
to the supervision of the Trust’s Board of Trustees and the Advisor, the
Sub-Advisor will assist the Advisor in providing a continuous investment
program
for the Separate Account, including investment research and management with
respect to the securities and investments and cash equivalents comprising
the
Separate Account. The Sub-Advisor will provide services under this Agreement
in
accordance with the Fund’s investment objective, policies and restrictions as
stated in the Fund’s Prospectus and resolutions of the Trust’s Board of Trustees
applicable to the Fund. The Fund shall provide the Sub-Advisor with written
notice of any changes to such objective, policies and restrictions no less
than
60 days prior to the effectiveness of any such change.
Without
limiting the generality of the foregoing, the Sub-Advisor further agrees
that
it:
(a) will
assist in determining from time to time what securities and other investments
will be purchased, retained or sold for the Separate Account;
(b) will
manage in consultation with the Advisor the Separate Account’s temporary
investments in securities, cash and cash equivalents;
(c) will
place orders pursuant to its investment determinations for the Separate Account
either directly with the issuer or with any broker or dealer;
(d) will
consult with the Advisor on a continuous basis as to the Fund’s total assets
which shall be invested in the Separate Account;
(e) will
attend regular business and investment-related meetings with the Trust’s Board
of Trustees and the Advisor if requested to do so by the Trust and/or the
Advisor; and
(f) will
maintain books and records with respect to the securities transactions for
the
Separate Account, furnish to the Advisor and the Trust’s Board of Trustees such
periodic and special reports as they may reasonably request with respect
to the
Separate Account, and provide in advance to the Advisor all reports to the
Board
of Trustees for examination and review within a reasonable time prior to
the
Trust’s Board meetings.
3.
Covenants
by the Sub-Advisor.
The
Sub-Advisor agrees with respect to the services provided to the Fund that
it:
(a) as
part
of its retention as a Sub-Advisor, with respect to the investment of a portion
of the assets held by the Fund, as determined by the Advisor, is authorized
by
its governing documents to enter into this Agreement and the terms of this
Agreement do not violate any obligation by which the Sub-Advisor is bound,
whether arising by contract, operation of law or otherwise;
(b) will
maintain its status as a Registered Investment Advisor with the Securities
and
Exchange Commission;
(c) will
conform with all Rules and Regulations of the Securities and Exchange
Commission;
(d) will
telecopy trade information to the Fund’s designated Fund Accountant no later
than the first business day following the day of the trade and cause broker
confirmations to be sent directly to the Fund’s designated Fund Accountant and
adopt such other trade reporting, settlement and clearance procedures with
respect to the Fund as shall be in accordance with the Fund’s existing
procedures and as mutually agreed by the parties hereto;
(e) will
treat confidentially and as proprietary information of the Fund all records
and
other information relative to the Fund and prior, present or potential
shareholders, and will not use such records and information for any purpose
other than performance of its responsibilities and duties hereunder (except
i)
after
prior written notification to the Trust, to
respond to requests that are a part of routine regulatory audits or inspections
or ii) after prior notification to and approval in writing by the Trust,
which
approval shall not be unreasonably withheld, and may not be withheld and
will be
deemed granted where the Sub-Advisor may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the
Trust);
(f) will
maintain its own Code of Ethics and report to the Advisor’s Compliance Officer
any violation of such Code that pertains to the management of the Fund, via
a
periodic compliance certification; and
(g) will
maintain its own compliance program or manual, pursuant to Rule 206(4) -7
of the
Investment Advisors Act. The Sub-Advisor will provide either the manual or
a
summary thereof, including updates thereto, to the Advisor’s Compliance
Officer.
4.
Covenants
by the Advisor and the Trust.
The
Advisor and the Trust agree with respect to the services provided to the
Fund:
(a) that
the
retention of the Sub-Advisor as investment advisor with respect to the
investment of a portion of the properties held by the Fund, as determined
by the
Advisor, is authorized by the governing documents relating to the Fund, and
the
terms of this Agreement do not violate any obligation by which the Fund is
bound, whether arising by contract, operation of law or otherwise;
(b) that
the
Sub-Advisor may use the Fund’s name on a representative client
list.
5.
Services
Not Exclusive.
The
services furnished by the Sub-Advisor hereunder are deemed not to be exclusive,
and nothing in this Agreement shall (i) prevent the Sub-Advisor or any
affiliated person (as defined in the 0000 Xxx) of the Sub-Advisor or any
employee, agent, manager or affiliated person of such person from acting
as
investment advisor or manager for any other person or persons, including
other
management investment companies or investment vehicles or accounts of any
type
with investment objectives and policies the same as or similar to those of
the
Fund or (ii) limit or restrict the Sub-Advisor or any such employee, agent,
manager or affiliated person from buying, selling or trading any securities
or
other investments (including any securities or other investments which the
Fund
is eligible to buy) for its or their own accounts or for the accounts of
others
for whom it or they may be acting; provided,
however, that
the
Sub-Advisor agrees that it will not undertake any activities which, in its
reasonable judgment, will adversely affect the performance of its material
obligations under this Agreement
6.
Separate
Account Transactions.
Investment decisions for the Separate Account shall be made by the Sub-Advisor
independently from those for any other investment companies and accounts advised
or managed by the Sub-Advisor. The Separate Account and such investment
companies and accounts may, however, invest in the same securities. When
the
Sub-Advisor seeks to purchase or sell the same security at substantially
the
same time on behalf of the Separate Account and/or another investment company
or
account, the Sub-Advisor shall, to the extent permitted by law and to the
extent
reasonably practicable, aggregate such orders or otherwise effect such
transaction on an average price basis, and available investments will be
allocated as to amount in a manner which the Sub-Advisor believes to be
equitable to the Fund and such other investment company or account. In some
instances, this investment procedure may adversely affect the price paid
or
received by the Fund or the size of the position obtained or sold by the
Fund.
To the extent permitted by law, the Sub-Advisor may aggregate the securities
to
be sold or purchased for the Separate Account with those to be sold or purchased
for other investment companies or accounts in order to obtain best execution
on
an overall basis for all the Sub-Advisor’s clients.
The
Sub-Advisor shall place orders for the purchase and sale of portfolio securities
for the Separate Account and will solicit broker-dealers to execute transactions
in accordance with the Fund’s policies and restrictions regarding brokerage
allocations. If applicable, the Sub-Advisor shall place orders pursuant to
its
investment determinations for the Separate Account either directly with the
issuer or with any broker or dealer. If it executes portfolio transactions
and
selects brokers or dealers, the Sub-Advisor shall use its reasonable best
efforts to seek the most favorable execution of orders, after taking into
account all factors the Sub-Advisor 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.
Consistent with this obligation, the Sub-Advisor may, to the extent permitted
by
law, purchase and sell portfolio securities to and from brokers and dealers
who
provide brokerage and/or research services (within the meaning of Section
28(e)
of the Securities Exchange Act of 1934) to or for the benefit of the Separate
Account and/or other accounts over which the Sub-Advisor or any of its
affiliates exercises investment discretion. The Sub-Advisor is authorized
to pay
to a broker or dealer who provides such brokerage and/or research services
a
commission for executing a portfolio transaction for the Separate Account
which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Sub-Advisor determines in good
faith that such commission was reasonable in relation to the value of the
brokerage and/or research services provided by such broker or dealer, viewed
in
terms of either that particular transaction or the Sub-Advisor’s overall
responsibilities to the Fund. In no instance will portfolio securities be
purchased from or sold to the Advisor or the Sub-Advisor or any affiliated
person of either thereof; except as permitted by Rules and Regulations of
the
Securities and Exchange Commission.
7.
Covenants
of the Advisor.
The
Advisor agrees with respect to the services provided to the Advisor hereunder
that the Advisor will conform to the applicable Rules and Regulations of
the
Securities and Exchange Commission.
8.
Certain
Representations and Warranties.
Each of
the parties hereto represents and warrants to the other that, as of the date
hereof; this Agreement has been duly and validly authorized by all necessary
action (corporate, limited liability company or otherwise) on the part of
such
party, has been duly executed and delivered by such party and constitutes
the
valid and legally binding obligation of such party, enforceable against such
party in accordance with its terms and conditions.
9.
Books
and Records.
In
compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Advisor 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
Trust
any of such records upon the Trust’s request. The Sub-Advisor further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records
required to be maintained by Rule 31a-1 under the 1940 Act with respect to
the
services provided by the Sub-Advisor hereunder.
10.
Expenses.
During
the term of this Agreement, the Sub-Advisor will pay its own expenses incurred
by it in connection with its advisory activities under this Agreement. Nothing
herein, however, shall be deemed to require the Sub-Advisor to pay any expenses
of the Fund or the Advisor.
11.
Compensation.
In
consideration of the services rendered pursuant to this Agreement, during
the
term of this Agreement the Advisor will pay to the Sub-Advisor, as compensation
for the services provided by the Sub-Advisor under this Agreement, a monthly
fee
equal to 1.00% (on an annualized basis) of the average net assets of the
Separate Account, plus any leveraged amount applied to the Separate Account
by
the Advisor. The Advisor shall pay the Sub-Advisor as soon as practical after
the last day of each calendar month, but no later than five (5) business
days
after the end of each month. In case of termination or expiration of this
Agreement during any calendar month, the fee with respect to such month shall
be
reduced proportionately based upon the number of calendar days during which
it
is in effect and the fee shall be computed upon the average net assets of
the
Separate Account in
accordance with the prospectus.
12.
Standard
of Care: Limitation of Liability: Limited Indemnity.
The
Sub-Advisor shall exercise due care and diligence and use the same skill
and
care in providing its services hereunder as it uses in providing services
to
other investment companies, accounts and customers, but shall not be liable
for
any action taken or omitted by the Sub-Advisor in the absence of bad faith,
willful misconduct, gross negligence or reckless disregard of its duties.
The
Fund further agrees to indemnify, defend and hold the Sub-Advisor, and its
managers, officers, directors, equityholders, employees and agents (“Related
Persons”), harmless from and against all losses, claims, damages, liabilities,
costs and expenses arising by reason of being or having been Sub-Advisor
to the
Fund, or in connection with the past or present performance of services to
the
Fund in accordance with this Agreement, except to the extent that the loss,
claim, damage, liability, cost or expense was caused by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
on
the part of the Sub-Advisor in the performance of its duties and obligations
under this Agreement. These losses, claims, damages, liabilities, costs and
expenses include, but are not limited to, amounts paid in satisfaction of
judgments, in compromise, or as fines or penalties, and counsel fees and
expenses, incurred in connection with the defense or disposition of any action,
suit, investigation or other proceeding, whether civil or criminal, before
any
judicial, arbitral, administrative or legislative body, in which the indemnitee
may be or may have been involved as a party or otherwise, or with which such
indemnitee may be or may have been threatened, while in office or thereafter.
Federal and various state securities laws may afford the Advisor and/or the
Fund
certain rights and remedies under certain circumstances, even in the absence
of
bad faith, willful misconduct, gross negligence or reckless disregard by
the
Sub-Advisor or its Related Persons, and nothing contained herein shall in
any
way constitute a waiver or limitation of any such rights and remedies that
the
Advisor and/or the Fund may have under any such federal or state securities
laws.
13.
Reference
to the Sub-Advisor.
Neither
the Advisor nor any affiliate or agent of it shall make reference to this
Agreement or use the name of the Sub-Advisor or any of its affiliates except
with respect to references in regulatory filings and communications with
shareholders concerning the identity of and services provided by the Sub-Advisor
to the Fund, which references shall not differ in substance from those typically
included in a proxy statement or annual report of the Fund, or the Fund’s
current registration statement and
any advertising or promotional materials, provided such materials are NASD
compliant, without the prior approval of the Sub-Advisor.
14. Duration
and Termination.
Unless
sooner terminated, this Agreement shall be for an initial period of one year,
and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by the
Fund’s Board of Trustees provided that its continuance also is approved by a
majority of the Fund’s Trustees who are not “interested persons” (as defined in
the 0000 Xxx) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement
is
terminable at any time without penalty, on sixty (60) days’ written notice, by
the Fund’s Board of Trustees, by the Advisor or by the Sub-Advisor or by vote of
a majority of the outstanding voting securities of the Fund. This Agreement
will
terminate automatically in the event of its assignment (as defined in the
1940
Act). Termination or expiration of this Agreement, however caused, shall
be
without prejudice to any compensation accrued to the date of termination
or
expiration and Sections 3(e), 9, 11, 12 and 13 shall survive any termination
or
expiration.
15.
Amendment
of this Agreement.
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, and
no
amendment of this Agreement shall be effective until approved by the Board
of
Trustees of the Fund, including a majority of the Trustees who are not
interested persons of the Advisor or the Sub-Advisor, cast in person at a
meeting called for the purpose of voting on such approval.
16.
Notice.
Any
notice, advice or report to be given pursuant to this Agreement shall be
delivered or mailed:
To
the
Sub-Advisor at:
Pacificor,
LLC
000
Xxxxx
Xxxxxx, Xxxxx 000
Xxxxx
Xxxxxxx, XX 00000
Attn:
Xxxxxxx Xxxxx
To
the
Advisor at:
Alternative
Investment Partners, LLC
000
Xxxxxxxxxxx Xxxxxx, Xxxxx 000x
Xxxxx
Xxxxxx, XX 00000
To
the
Fund at:
AIP
Alternative Strategies Funds
000
Xxxxxxxxxxx Xxxxxx, Xxxxx 000x
Xxxxx
Xxxxxx, XX 00000
with
a
copy to:
Blank
Rome LLP
000
Xxxxxxxxxx Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
|
Attention:
|
Xxxxxx
X. Xxxxxx, Esq.
|
The
effective date of any notice shall be (i) the date such notice is sent if
such
delivery is effected by hand or facsimile; (ii) one business day after the
date
such notice is sent if such delivery is effected by national overnight courier;
or the fifth (5th)
Business Day after the date of the mailing thereof.
17.
Proxy
Voting.
The
Sub-Advisor is authorized to vote proxies received on securities held in
the
Separate Account. The Advisor and the Trust represent that proxy voting
authority is not expressly reserved to any other party under the documents
governing the Funds. All proxies will be voted in accordance with the Advisor’s
written policy in effect from time to time, receipt of which the Advisor
and the
Trust hereby acknowledge. The Advisor and the Trust shall instruct the Fund’s
custodian to forward promptly to the Sub-Advisor receipt of such communications
and to follow the Sub-Advisor’s instructions concerning the same. The
Sub-Advisor shall not be responsible for voting proxies not timely received
by
the Sub-Advisor.
18.
Legal
Proceedings.
The
Sub-Advisor will not advise or act for the Advisor of the Fund in any legal
proceedings, including bankruptcies or class actions, involving securities
held
or previously held in the Fund or the issuers of these securities, without
the
prior consent of the Advisor.
19.
Force
Majeure.
In
addition, and without limiting any other provision of this Agreement, the
Sub-Advisor shall not be liable for (i) force majeure or other events beyond
the
control of the Sub-Advisor, including without limitation any failure, default
or
delay in performance resulting from computer or other electronic or mechanical
equipment failure, unauthorized access, theft, operator errors, government
restrictions, exchange or market rulings or suspension of trading, strikes,
failure of common carrier or utility systems, severe weather or breakdown
in
communications not reasonably within the control of the Sub-Advisor or other
causes commonly known as “acts of god”, whether or not any such cause was
reasonably foreseeable, or (ii) general market conditions rather than a
violation of this Agreement by the Sub-Advisor.
20. Limits
on Obligations.
Notwithstanding anything to the contrary in this Agreement, in no event will
the
Sub-Advisor be obligated to effect any transaction or instruction it believes
(without verification or inquiry) would violate any law, rule or regulation;
the
rules or regulations of any regulatory or self-regulatory body; or the
Sub-Advisor’s legal, regulatory, or operational policies and procedures;
provided, however, that the Sub-Advisor must provide the Advisor written
notice
of its decision not to effect a transaction within one business day of such
decision
21. Miscellaneous.
Neither
the holders of shares of the Fund nor the Trustees shall be personally liable
hereunder. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof
or
otherwise affect their construction or effect. 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.
22. Entire
Agreement.
This
Agreement constitutes the entire agreement of the parties with respect to
the
subject matter hereof and supersedes all prior writings and understandings
relating thereto.
23.
Governing
Law.
This
Agreement constitutes the entire agreement of the parties, shall be binding
upon
and shall inure to the benefit of the parties hereto and their respective
successors and shall be governed by New York law in a manner not in conflict
with the provisions of the 1940 Act.
24.
Counterparts.
This
Agreement may be executed 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,
each of
the parties hereto has caused this Agreement to be duly executed by its
authorized officer.
Pacificor,
LLC
By:
________________________
Name:
Xxxxxxx Xxxxx
Title:
President
AIP
Alternative Investment Partners, LLC
By:
________________________
Name:
Xxx
Xxxxxxxxxx
Title:
Chief Executive Officer
By:
________________________
Name:
Xxx
Xxxxxxxxxx
Title:
President
