77Q1(a)
AMENDED AND RESTATED SUB-ADVISORY
AGREEMENT
AGREEMENT made as of the 30th day of May, 2013,
by and between XXXXXX XXXXXXX INVESTMENT
MANAGEMENT INC., a Delaware corporation (hereinafter
referred to as the "Investment Adviser"), and XXXXXX
XXXXXXX INVESTMENT MANAGEMENT LIMITED, a
company incorporated under the laws of England (hereinafter
referred to the "Local Manager").
W I T N E S S E T H :
WHEREAS, The Universal Institutional Funds, Inc.
(the "Fund") is a Maryland corporation engaged in business as
an open-end management investment company with separate
portfolios, certain of which are set forth on Schedule A, as may
be amended from time to time to add or remove portfolios
(with such portfolios set forth on Schedule A being the
"Portfolios"), and is registered under the Investment Company
Act of 1940, as amended (hereinafter referred to as the
"Investment Company Act"); and
WHEREAS, the Investment Adviser and the Local
Manager are engaged principally in rendering investment
advisory services and are registered as investment advisers
under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"); and
WHEREAS, the Local Manager is regulated by the
Financial Conduct Authority in the United Kingdom; and
WHEREAS, the Investment Adviser has entered into
an investment advisory agreement (the "Advisory
Agreement") with the Fund dated May 31, 1997, as amended
from time to time, pursuant to which the Investment Adviser
provides management and investment and advisory services to
the Fund; and
WHEREAS, the Investment Adviser entered into an
investment sub-advisory agreement with the Local Manager
with respect to each Portfolio, effective as of the effective date
set forth in Schedule A (the "Original Sub-Advisory
Agreement"); and
WHEREAS, as of June 30, 2009, the Original Sub-
Advisory Agreement was amended and restated (the "Current
Sub-Advisory Agreement") to incorporate amendments
thereto and to make other ministerial changes designed to
facilitate the administration of the Current Sub-Advisory
Agreement; and
WHEREAS, as of May 30, 2013, the Current Sub-
Advisory Agreement is hereby amended and restated (this
"Agreement") to remove references to the United Kingdom's
Financial Services Authority, which has been abolished, and
replace them with references to the Financial Conduct
Authority, which is a new agency performing a similar but
expanded function as the Financial Services Authority; and
WHEREAS, the Local Manager is willing to provide
investment advisory services to the Investment Adviser in
connection with the Fund's operations on the terms and
conditions hereinafter set forth and including the terms and
conditions contained in the Annex to this Agreement; provided
however, that nothing in the Annex to this Agreement shall
authorize conduct prohibited under the Investment Company
Act or the Advisers Act;
NOW THEREFORE, in consideration of the premises
and the covenants hereinafter contained, the Local Manager
and the Investment Adviser hereby agree as follows:
ARTICLE I
Duties of the Local Manager
The Investment Adviser hereby employs the Local
Manager to act as discretionary investment manager to the
Investment Adviser and to furnish the investment management
services described below, subject to the broad supervision of
the Investment Adviser and the Fund, for the period and on the
terms and conditions set forth in this Agreement. The Local
Manager hereby accepts such employment and agrees during
such period, at its own expense, to render, or arrange for the
rendering of, such services and to assume the obligations
herein set forth for the compensation provided for herein. The
Investment Adviser and its affiliates shall for all purposes
herein be deemed a Professional Client as defined under the
rules and guidance promulgated by the Financial Conduct
Authority in the FCA Handbook (hereinafter referred to as the
"FCA Rules"). The Investment Adviser has the right to
request to be treated as a retail client. Classification as a retail
client requires the Local Manager to exercise a higher level of
protective care under the regulatory system. However, the
Local Manager is not obliged to accept any such request. The
Investment Adviser should be aware that professional clients
will not be entitled to certain protections afforded by the FCA
Rules to retail clients. For the avoidance of doubt, the Local
Manager will, for purposes of the FCA Rules, only treat the
Investment Adviser (but not the Fund) as its customer from
both a regulatory and a contractual perspective. The Local
Manager and its affiliates shall for all purposes herein each be
deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority
to act for or represent the Fund in any way or otherwise be
deemed an agent of the Fund.
The Local Manager shall have full discretion, power
and authority on the Fund's behalf to buy, sell, retain,
exchange or otherwise deal in investments and other assets,
make deposits, subscribe to issues and offers for sale and
accept placings of any investments, enter into foreign currency
transactions on a spot or forward basis, effect transactions on
any markets, take all day to day, decisions and otherwise act as
the Local Manager judges appropriate in relation to the
investment and reinvestment of the portfolio of assets of each
Portfolio. This includes performing all acts and executing all
documents which the Local Manager reasonably considers
incidental thereto, including (without limitation) power to
execute and deliver all applications, requests, or claims for
refund, reduction, repayment or credit of, or exemption or
relief from, any withholding tax or similar taxes in any
jurisdiction in which such applications, requests or claims may
be made. Subject to guidelines adopted by each Portfolio, the
Local Manager shall also make recommendations or take
action as to the manner in which voting rights, rights to
consent to corporate action and any other rights pertaining to
the portfolio of assets of each Portfolio shall be exercised. All
of the foregoing is subject always to the restrictions of the
Articles of Incorporation and By-Laws of the Fund, as they
may be amended and/or restated from time to time and as
provided to the Local Manager by the Investment Adviser, the
provisions of the Investment Company Act and the statements
relating to each Portfolio's investment objective(s), investment
policies and investment restrictions as the same are set forth in
the currently effective prospectus and statement of additional
information relating to the shares of the Fund under the
Securities Act of 1933, as amended (the "Prospectus" and
"Statement of Additional Information," respectively), as
well as to the supervision of the Investment Adviser and the
Board of Directors of the Fund.
The Local Manager will not hold money on behalf of
the Investment Adviser or the Fund, nor will the Local
Manager be the registered holder of the registered investments
of the Investment Adviser or the Fund or be the custodian of
documents or other evidence of title.
The Local Manager may, where reasonable, employ
agents (including affiliates) to perform any administrative,
dealing or ancillary services required to enable the Local
Manager to perform its services under this Agreement.
ARTICLE II
Allocation of Charges and Expenses
The Local Manager assumes and shall pay for
maintaining the staff and personnel necessary to perform its
obligations under this Agreement and shall at its own expense
provide the office space, equipment and facilities which it is
obligated to provide under Article I hereof.
ARTICLE III
Compensation of the Local Manager
For the services rendered, the facilities furnished and
expenses assumed by the Local Manager, the Investment
Adviser shall pay to the Local Manager a fee with respect to
each Portfolio in an amount to be determined from time to time
by the Investment Adviser and the Local Manager but in no
event in excess of the amount that the Investment Adviser
actually received for providing services to the Fund pursuant to
the Advisory Agreement. The fee currently paid by the
Investment Adviser to the Local Manager in respect to each
Portfolio is set forth on Schedule A, as may be amended from
time to time.
ARTICLE IV
Limitation of Liability of the Local Manager
No warranty is given by the Local Manager as to the
performance or profitability of the Fund or any part thereof.
If a percentage restriction contained in the Fund's
investment objective(s) or investment restrictions (as the same
are set forth in the Fund's then-currently effective Prospectus
and Statement of Additional Information) is adhered to at the
time of investment, a later change in percentage resulting from
a change in values or assets will not constitute a violation of
such restriction.
The Local Manager will not be responsible to the
Investment Adviser or the Fund for the solvency, actions or
omissions of any counterparty, broker, dealer, market-maker,
bank, custodian or sub-custodian, with whom it transacts
business on the Investment Adviser's behalf, other than
affiliates of the Local Manager.
Nothing in this Agreement will exclude or restrict any
liability which the Local Manager has under the Financial
Services and Markets Xxx 0000 or the FCA Rules in relation to
the Investment Adviser and which may not be excluded or
restricted thereunder.
The Local Manager 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 the performance of
investment advisory services rendered with respect to the
Fund, except for 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. The
exception in the previous sentence shall apply to each
limitation of the Local Manager's liability contained in this
Article IV. As used in this Article IV, the Local Manager shall
include any affiliates of the Local Manager performing
services for the Local Manager contemplated hereby and
directors, officers and employees of the Local Manager and
such affiliates.
It is understood and agreed that in furnishing the
investment advice and other services as herein provided, the
Local Manager shall use its best professional judgment to
perform its obligations hereunder which will provide favorable
results for each Portfolio. The Local Manager shall not be
liable to a Portfolio or to any shareholder of a Portfolio to any
greater degree than the Investment Adviser, and the Investment
Adviser shall indemnify and hold the Local Manager harmless
against any loss, liability or cost incurred by the Local
Manager towards each Portfolio or to any shareholder of a
Portfolio except to the extent that such loss, liability or cost
arises from the Local Manager's fraud, willful misfeasance,
bad faith or gross negligence in the performance of the Local
Manager's duties hereunder.
Each Portfolio shall be severally (and not jointly)
liable for its own fees, costs, expenses and other liabilities
attributable to such Portfolio, and no Portfolio shall be
responsible for any liabilities in connection with any other
Portfolio.
ARTICLE V
Activities of the Local Manager
The services of the Local Manager to the Investment
Adviser in connection with the operations of each Portfolio are
not to be deemed to be exclusive, the Local Manager and any
person controlled by or under common control with the Local
Manager (for purposes of this Article V referred to as
"affiliates") being free to render services to others. It is
understood that the Directors and any officers, employees and
shareholders of the Fund are or may become interested in the
Local Manager and its affiliates, as directors, officers,
employees and shareholders or otherwise and that directors,
officers, employees and shareholders of the Local Manager
and its affiliates are or may become similarly interested in the
Fund, and that the Local Manager and directors, officers,
employees, partners and shareholders of its affiliates may
become interested in the Fund as shareholders or otherwise.
ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective with respect to
each Portfolio for an initial period of up to two years from the
effective date set forth opposite such Portfolio's name on
Schedule A hereto, and thereafter, but only so long as such
continuance is specifically approved at least annually by (i) the
Directors of the Fund or by the vote of a majority of the
outstanding voting securities of the Portfolio and (ii) a
majority of those Directors 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.
This Agreement may be terminated at any time with
respect to a Portfolio, without the payment of any penalty, by
the Investment Adviser, by the Board of Directors of the Fund
or by vote of a majority of the outstanding voting securities of
the Portfolio or by the Local Manager, on sixty days' written
notice to the other party. This Agreement shall automatically
terminate with respect to a Portfolio in the event of its
assignment or in the event of the termination of the Advisory
Agreement of such Portfolio. Any termination shall be without
prejudice to the completion of transactions already initiated.
ARTICLE VII
Amendments to this Agreement
This Agreement may be amended with respect to a
Portfolio by the parties only if such amendment is specifically
approved by (i) the Directors of the Fund or by the vote of a
majority of outstanding voting securities of the Portfolio and
(ii) a majority of those Directors 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.
ARTICLE VIII
Definitions of Certain Terms
The terms "vote of a majority of the outstanding
voting securities," "assignment," "affiliated person" and
"interested person" used in this Agreement, shall have the
respective meanings specified in the Investment Company Act
and the rules and regulations thereunder, subject, however, to
such exemptions as may be granted by the Securities and
Exchange Commission under said Act.
ARTICLE IX
Governing Law
This Agreement shall be construed in accordance with
the laws of the State of New York and the applicable
provisions of the Investment Company 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
Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have
executed and delivered this Agreement as of the date first
above written.
XXXXXX XXXXXXX INVESTMENT
MANAGEMENT INC.
By:
/s/ Xxxxxx Xxx
Name:
Xxxxxx Xxx
Title:
Managing Director
XXXXXX XXXXXXX INVESTMENT
MANAGEMENT LIMITED
By:
/s/ Xxxxx Xxxxxxx
Name:
Xxxxx Xxxxxxx
Title:
Director
SCHEDULE A
As of May 29, 2014
Name of Portfolio
Effective Date of
Agreement and
any amendments
entered into prior
to May 30, 2013
Fee
Emerging Markets
Equity Portfolio
Effective Date:
04/23/09
Amendments:
06/30/09
The Fund may
have portfolio
managers from
one or more sub-
advisers and from
the Investment
Adviser. The
Investment
Adviser will retain
50% of the net
advisory fees it
receives from the
Fund, after taking
into account any
fee waivers. The
remaining 50%
will be split
between the
Investment
Adviser, the Local
Manager and any
other sub-adviser,
and paid out on a
monthly basis, (i)
with respect to the
Local Manager,
based on the
services provided
by the Local
Manager and (ii)
with respect to
each other sub-
adviser and the
Investment
Adviser, based on
the relative
percentage of
assets managed by
members of the
portfolio
management team
in the funds and
separate accounts
that it oversees in
each location, as
may be determined
periodically.
Global Franchise
Portfolio
Effective Date:
08/11/03
Amendments:
04/25/06, 06/30/09
The Fund may
have portfolio
managers from
one or more sub-
advisers and from
the Investment
Adviser. Effective
September 1,
2010, the
Investment
Adviser will retain
50% of the net
advisory fees it
receives from the
Fund, after taking
into account any
fee waivers. The
remaining 50%
will be split
between the
Investment
Adviser, the Local
Manager and any
other sub-adviser,
and paid out on a
monthly basis,
based on relative
percentage of
the "total amount
of compensation"
of each of the
Fund's portfolio
managers. The
"total amount of
compensation" is
comprised of base
salary, plus cash
bonus, plus long-
term incentive
compensation.
Global
Infrastructure
Portfolio
Effective Date:
10/03/13
The Fund may
have portfolio
managers from
one or more sub-
advisers and from
Investment
Adviser. The
Investment
Adviser will retain
50% of the net
advisory fees it
receives from the
Fund, after taking
into account any
fee waivers. The
remaining 50%
will be split
between the
Investment
Adviser, the Local
Manager and any
other sub-adviser,
and paid out on a
monthly basis,
based on the
relative percentage
of assets under
management of the
Fund managed by
the Local
Manager, each
other sub-adviser
and, as may be
determined
periodically.
Global Real Estate
Portfolio
Effective Date:
02/06/06
Amendments:
04/25/06, 06/30/09
The Fund may
have portfolio
managers from
one or more sub-
advisers and from
Investment
Adviser. The
Investment
Adviser will retain
50% of the net
advisory fees it
receives from the
Fund, after taking
into account any
fee waivers. The
remaining 50%
will be split
between the
Investment
Adviser, the Local
Manager and any
other sub-adviser,
and paid out on a
monthly basis,
based on the
relative percentage
of assets under
management of the
Fund managed by
the Local
Manager, each
other sub-adviser
and the Investment
Adviser, as may be
determined
periodically.
SUB-ADVISORY AGREEMENT
ANNEX
1. REGULATORY STATUS
The Local Manager is authorised and regulated by
the Financial Conduct Authority (the "FCA"), the
UK supervisory authority whose registered office
is at 25 The North Colonnade, Canary Xxxxx,
Xxxxxx, Xxxxxx Xxxxxxx X00 0XX.
2. ORDER EXECUTION
The Local Manager acknowledges its duty under
the FCA Rules to take all reasonable steps to
obtain the best possible result for the Investment
Adviser (taking into account the factors prescribed
in the FCA Rules) when executing orders resulting
from decisions to deal in designated investments
(as defined in the FCA Rules) and to act in
accordance with the Investment Adviser's best
interests when placing orders in respect of
designated investments with other persons for
execution or when receiving and transmitting
orders to other persons for execution. Information
concerning the Local Manager's policy for
meeting those obligations (the "Order Execution
Policy Disclosure Statement") is included as
Schedule 1. The Investment Adviser
acknowledges receipt of the Order Execution
Policy Disclosure Statement and confirms its
consent to the matters described in it. For the
avoidance of doubt and as set out in the Order
Execution Policy Disclosure Statement, the
Investment Adviser acknowledges that specific
instructions from the Investment Adviser in
relation to the execution of orders may prevent the
Local Manager from following its execution
policy in relation to such orders in respect of the
elements of execution covered by the instructions.
The Local Manager will act in good faith and with
due diligence in its choice and use of brokers or
dealers ("Broker") to place client orders or
execute client transactions. Subject thereto and to
the FCA Rules, the Local Manager may execute or
arrange for the execution of transactions for the
Investment Adviser on such markets or exchanges
(including markets or exchanges that are not
Regulated Markets or MTFs) and with or through
such Brokers (but excluding any Affiliate) as it
thinks fit. All transactions will be effected in
accordance with the rules and regulations of the
relevant market or exchange, and the Local
Manager may take all such steps as may be
required or permitted by such rules and regulations
and/or by appropriate market practice. For
purposes of this Agreement, "Multilateral Trading
Facility" (also "MTF") has the meaning given in
the FCA Rules (in summary, an investment
exchange or multilateral trading platform other
than a Regulated Market); and "Regulated
Market" has the meaning given in the FCA Rules
(in summary, an investment exchange or
multilateral trading platform which, in either case,
is regulated within the EEA as a "regulated
market" under the Markets in Financial
Instruments Directive).
The Investment Adviser expressly instructs the
Local Manager not to make public immediately
any limit order relating to transactions in respect
of a Portfolio which is not immediately executed
under prevailing market conditions where the
Local Manager believes it is in the Investment
Adviser's interests not to do so.
The Local Manager may aggregate transactions for
a Portfolio with transactions of other clients of the
Local Manager and of its employees and of clients
of its affiliate and its employees and will promptly
allocate such aggregated transactions among the
participating accounts on a fair and equitable basis
in accordance its order allocation policy
established in compliance with the requirements of
the FCA Rules. The Investment Adviser
recognises that the Local Manager will aggregate
transactions only where it reasonably believes that
it is likely that the aggregation will operate overall
to the advantage of such Portfolio. However, on
occasion the aggregation may operate to the
disadvantage of a Portfolio in relation to a
particular order. The Local Manager will provide
a copy of its order allocation policy to the
Investment Adviser upon request.
3. DEALING ARRANGEMENTS
The Local Manager's policy regarding its Dealing
Arrangements, including details of the goods and
services that relate to the execution of trades and
those that relate to the provision of research are set
out in Schedule 2. The Local Manager shall
provide the Investment Adviser with details of its
Dealing Arrangements with the frequency required
by the FCA Rules. For purposes of this
Agreement, "Dealing Arrangements" means
arrangements entered into by the Local Manager
as permitted by the FCA Rules for the receipt or
payment of money, goods or services that relate to
the execution of trades or the provision of research
under which the Local Manager executes or
arranges for the execution of orders in designated
investments.
4. MATERIAL INTERESTS
The Local Manager and any of its affiliates (an
"Affiliate") may, subject to the limitations of the
U.S. Investment Company Act of 1940, as
amended, and to the overriding principles of
suitability and best execution and without prior
reference to the Investment Adviser, effect
transactions in which the Local Manager or
Affiliate has, directly or indirectly, a material
interest or a relationship of any description with
another party, which may involve a potential
conflict with the Local Manager's duty to the
Investment Adviser. Neither the Local Manager
nor any Affiliate shall be liable to account to the
Investment Adviser for any profit, commission or
remuneration made or received from or by reason
of such transactions or any connected transactions
nor will the Local Manager's fees, unless
otherwise provided, be abated. For example, such
potential conflicting interests or duties may arise
because:
* any of the Local Manager's or Affiliate's
directors or employees is a director of,
holds or deals in securities of, or is
otherwise interested in any company
whose securities are held or dealt in on
behalf of the Investment Adviser;
* the transaction is in the securities of a
company for which an Affiliate has
provided corporate finance advice,
underwritten, managed or arranged an
issue or offer for sale;
* the Local Manager may act as agent for
the Investment Adviser in relation to
transactions in which it is also acting as
agent for the account of other clients
and/or an Affiliate;
* the transaction is in units or shares of a
collective investment scheme (regulated or
unregulated) of which the Local Manager
or any Affiliate is the manager, operator,
banker, adviser, custodian or trustee; or
* The Local Manager may act as agent for a
counterparty and also act as agent on
behalf of the Investment Adviser and in
the course of so acting may charge a
commission to either the counterparty or
the Investment Adviser.
Nothing in the Agreement shall oblige the Local
Manager or any Affiliate to accept responsibilities
more extensive than those set out in the
Agreement or shall give rise to any fiduciary or
equitable duties which would prevent or hinder
either: (i) the Local Manager or any Affiliate
performing investment management or other
services for any person or entity other than the
Investment Adviser or from making investments
on their own behalf and the performance of such
services for others or investment on their own
behalf will not be deemed to violate or give rise to
any duty or obligation to the Investment Adviser;
or (ii) the Local Manager effecting any transaction
with or for the Investment Adviser with an
Affiliate; or (iii) such Affiliate acting both as
market-maker and broker, principal or agent,
dealing with other Affiliates and other clients and
generally effecting transactions as provided above
nor from retaining any remuneration received in
respect thereof.
5. RECORDS AND REPORTS
5.1 The Local Manager will keep accurate and
detailed records with respect to all receipts,
investments, sales, disbursements and other
transactions carried out by the Local Manager for
the Investment Adviser or with a Portfolio.
5.2 All records held pursuant to this clause by the
Local Manager shall be open to inspection by the
Investment Adviser or each Portfolio and the
Local Manager will provide the Investment
Adviser and each Portfolio with such access as it
itself has to records held by any relevant third
party, in each case at reasonable times during
business hours and upon the giving of reasonable
notice by the Investment Adviser or a Portfolio.
5.3 The Local Manager shall, not later than 10
working days following the end of each calendar
month, furnish to the Investment Adviser a
statement showing all transactions that have
occurred in each Portfolio and a monthly listing of
all investments and cash balances held as of the
end of such month.
5.4 The monthly statement will show the cost or
amount realised (in the case of any relevant new
purchase or sale) and, where available, the current
value (where applicable) of each investment held
in each Portfolio and any income arising on each
Portfolio's account during the relevant calendar
month, and will also include a statement showing
the measure of the performance of the assets of
each Portfolio. The basis of all valuations will be
as stated in the first monthly statement, unless
otherwise agreed.
5.5 The Local Manager will not provide the
Investment Adviser with an individual trade
confirmation of each portfolio transaction unless
the Investment Adviser has specifically requested
the Local Manager to do so.
6. FORCE MAJEURE
The Local Manager shall not be responsible or
liable to the Investment Adviser or a Portfolio for
any failure or delay in the performance of its
obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances
beyond its reasonable control, including, without
limitation, acts of God; earthquakes; fires; floods;
wars; civil or military disturbances; sabotage;
epidemics; riots; interruptions, loss or
malfunctions of utilities; computer (hardware or
software) or communications services; accidents;
labor disputes; acts of civil or military authority or
governmental actions; it being understood that the
Local Manager shall use reasonable efforts which
are consistent with accepted practices in the
investment management industry to resume
performance as soon as practicable under the
circumstances.
7. COMPLAINTS
The Local Manager maintains procedures in
accordance with FCA Rules for the effective
consideration and handling of client complaints.
Complaints will be considered promptly by the
appropriate supervisory manager who is not
personally involved in the subject matter of the
complaint. Where appropriate, the complaint will
be passed to the Compliance Officer.
8. RECORDING OF TELEPHONE
INSTRUCTIONS
All instructions received from the Investment
Adviser by telephone will be binding as if received
in writing. The Local Manager may record
telephone conversations with the Investment
Adviser and produce such recordings in evidence
if the Local Manager sees fit to do so. In some
circumstances, when the Investment Adviser is
dealing with the Local Manager, data may be
collected about the Investment Adviser and the
Investment Adviser's officers or employees
indirectly from monitoring devices or other means
(for example, telephone logs and recordings). In
these circumstances, the data are not accessed on a
routine basis but access is possible. Access could
occur, for instance, in situations where the data are
needed to clarify or confirm instructions provided
by the Investment Adviser, for compliance or
billing purposes.
9. CONFIDENTIALITY AND DISCLOSURE
The Local Manager and the Investment Adviser
undertake to keep private and confidential all
information acquired in connection with this
Agreement, and not to disclose such information to
any person except to the extent that:
(a) the other party gives prior consent; or
(b) the Local Manager is required to disclose
the information by the FCA, the Bank of
England, the London Stock Exchange or any
other recognised investment exchange, the
City Panel on Takeovers and Mergers or any
other regulatory authority having
jurisdiction over the Local Manager or the
performance by it of its obligations under
this Agreement or by English Law; or
(c) disclosure to a counterparty to a transaction
effected for a Portfolio is required as a
condition to such transaction; or
(d) disclosure is necessary to enable the Local
Manager to perform its obligations under
this Agreement.
10. DATA PROTECTION
10.1 The Local Manager will, in connection with the
Sub-Advisory Agreement, comply (where
applicable) with the UK Data Protection Xxx 0000
and other applicable data protection laws and
regulations (together, the "Data Protection
Laws").
10.2 The Investment Adviser will comply (where
applicable) with the Data Protection Laws and
(where applicable) take all reasonable steps to
ensure that it has obtained all necessary consents
for the Local Manager to process any personal
data for the purposes of the Agreement.
11. RISK DISCLOSURE
11.1 The Investment Adviser's attention is drawn to
Schedule 3 which provides important information
as to the nature and risks of certain investments
which may comprise a Portfolio and a description
of certain provisions of the industry standard
master agreements and their consequences. The
Investment Adviser represents and warrants to the
Local Manager that it has read, understood, and
accepts the provisions of Schedule 3.
Schedule 1
ORDER EXECUTION POLICY DISCLOSURE
STATEMENT
Transaction Execution Arrangements
Xxxxxx Xxxxxxx Investment Management Limited ( the
"Local Manager") has established and implemented
transaction execution arrangements that are designed to
allow the Local Manager to take all reasonable steps to
obtain the best possible result when executing or placing
orders as portfolio manager on behalf of its clients in
relation to financial instruments that form part, or may
become part, of one or more investment portfolios
managed by the Local Manager for that or those clients
(each a "Transaction"). For the purposes of this
document: any reference to the Local Manager "executing
an order" is a reference to the Local Manager, as agent,
entering into a Transaction on behalf of a client with
another person that acts as principal to that Transaction,
any reference to the Local Manager "placing an order" is a
reference to the Local Manager, as agent, arranging for a
Transaction to be entered into by another person that acts
as agent on behalf of a client when entering into that
Transaction, and any reference to the Local Manager
"effecting a Transaction" is a reference to the Local
Manager either placing or executing an order.
As part of its transaction execution arrangements, the
Local Manager has an order execution policy in place that
is designed to ensure that the Local Manager complies
with its duty to obtain the best possible result when
effecting a Transaction for one or more clients (the
"Order Execution Policy").
This document is intended to provide the Local Manager's
clients with a summary of the Local Manager's Order
Execution Policy. Nothing herein is intended to place upon
the Local Manager fiduciary or other duties or
responsibilities over and above the specific obligations
provided for in the investment management agreement
between the Local Manager and a client.
The quality of execution
Where the Local Manager effects a Transaction for its
professional clients, subject to any specific instructions
received from a client, the Local Manager will determine
the best possible result taking the following factors into
account: (a) price; (b) costs; (c) speed; (d) likelihood of
execution or settlement; (e) size of the Transaction; (f)
nature of the Transaction; and (g) any other consideration
relevant to the Transaction, including availability of
liquidity, the impact on the market of the Transaction and
the Local Manager's operational costs.
Price is normally judged with reference to normal market
size for the relevant financial instrument. Where trades are
outside of normal market size and in sizeable volume or
made on an over the counter basis, it is not generally
possible to source a quote for price from Brokers because a
declaration of intention to deal could result in
market/security price sensitivity. As a result, the Local
Manager must then determine what is likely to be the best
execution venue without being able to get firm quotes, but
there can be no guarantee that it will be.
In certain circumstances, the relevant execution venue may
not be able to provide sufficient immediately available
liquidity to carry the contemplated Transaction out in full
at the time required. In addition, other circumstances may
dictate that the best immediately available price for a
Transaction may not be the best possible result for that
Transaction. Where, in the Local Manager's opinion,
those circumstances occur the Local Manager may need to
split the Transaction up into multiple Transactions with a
view to obtaining the best possible result in relation to the
original Transaction by completing that Transaction over a
period of time using a variety of execution venues.
The Local Manager will determine the relative importance
of each factor using the following criteria: (a) the
characteristics of the Investment Adviser; (b) the
characteristics and nature of the Transaction, including
whether any specific instructions are given by the
Investment Adviser; (c) the characteristics of the financial
instruments that are the subject of the Transaction; and (d)
the characteristics of the execution venues to which the
Transaction can be directed.
While the Local Manager will take all reasonable steps,
based on the resources available to it, to satisfy itself that it
has processes in place that can reasonably be expected to
lead to the delivery of the best possible result, the Local
Manager does not guarantee that it will always be able to
obtain the best possible result in relation to each
Transaction.
Specific Instructions
Where a client provides the Local Manager with a specific
instruction in relation to a proposed Transaction or any
particular aspect of that Transaction (including, but not
limited to, a direction to execute on a particular venue) the
Local Manager will effect that Transaction in accordance
with those instructions. Specific instructions may prevent
the Local Manager from following some or all of the steps
provided for in the Order Execution Policy which are
designed to obtain the best possible result in respect of the
elements covered by those instructions.
In following such instructions, the Local Manager will be
deemed to have taken all reasonable steps to provide the
best possible result in respect of the relevant Transaction
or aspect of that Transaction covered by the specific
instructions. To the extent that specific instructions are not
comprehensive, the Local Manager will determine any
non-specified components in accordance with its Order
Execution Policy.
Selection of Execution Venues
The Local Manager includes in its Order Execution Policy
those execution venues (sources of liquidity) that enable
the Local Manager to obtain on a consistent basis the best
possible result in relation to the Transactions. The Local
Manager may use one or more of the following venues
types: (a) Regulated Markets; (b) Multilateral Trading
Facilities; (c) Systematic Internalisers; (d) third party
investment firms; and/or (e) non-EU entities performing
similar functions. In this document, the terms "Regulated
Market", "Multilateral Trading Facility" and "Systematic
Internaliser" have the meaning given to them in the
Markets in Financial Instruments Directive.
Certain Transactions may be effected outside a Regulated
Market or a Multilateral Trading Facility where the Local
Manager believes it can achieve the best possible result by
doing so.
The Local Manager assesses product-by-product which
venues are likely to provide the best possible result, it also
monitors the execution of all Transactions on that venue if
an order has been placed with another person and keeps
informed of relevant market information. For certain
financial instruments, there may be only one execution
venue available and in such circumstances, the Local
Manager will presume that it has obtained the best possible
result if it effects a Transaction in that venue.
If a Transaction is effected by placing an order with
another person for execution, the Local Manager will
either determine the ultimate execution venue itself and
instruct the other person accordingly, or the Local
Manager will use all reasonable efforts to satisfy itself that
the other person has arrangements in place to enable the
Local Manager to comply with the Local Manager's
obligation to obtain the best possible result in relation to
the relevant Transaction.
Approval of brokers, monitoring and review
The Local Manager's Order Execution Policy provides for
a broker approval procedure. Apart from a broker's
commission/commission equivalent rates, the Local
Manager will consider the following matters when
selecting and approving a broker: (a) reliability, integrity
and reputation in the industry; (b) execution capabilities,
including block positioning, speed of execution and quality
and responsiveness of its trading desk; (c) knowledge of,
and access to, the markets for the securities being traded;
(d) ability to obtain price improvement; (e) ability to
maintain confidentiality; (f) ability to handle non-
traditional trades; (g) technology infrastructure; and (h)
clearance and settlement capabilities.
In addition, in certain circumstances and in some markets,
a broker's research capabilities may be considered relevant
factors in connection with the selection and approval of a
broker. This may include a broker's coverage of certain
industries in which the Local Manager may seek to invest
on behalf of its clients, the quality of the broker's research,
as well as the reputation and standing of the broker's
analysts, their investment strategies, timing, accuracy of
statistical information and idea generation.
The Local Manager monitors the quality of the execution
services provided by approved brokers and reviews each
broker's performance on a regular basis, taking the above
factors into account. The Local Manager meets with the
most significant brokers periodically to review the service
and performance levels provided.
Commission Rates
The Local Manager effects Transactions on the basis of
standard commission rates for specific markets. The rates
are negotiated from time to time with each broker to
ensure competitiveness, taking into account market trends
whilst seeking a commercial balance so as to ensure the
quality of services provided by the brokers.
Schedule 2
INFORMATION ABOUT XXXXXX XXXXXXX
INVESTMENT MANAGEMENT LIMITED'S USE
OF DEALING COMMISSIONS AND ACCEPTANCE
OF NON-MONETARY BENEFITS FROM
BROKERS
Xxxxxx Xxxxxxx Investment Management Limited's use
of dealing commissions and non-monetary benefits
Xxxxxx Xxxxxxx Investment Management Limited (the
"Local Manager") will from time to time execute or place
orders with selected brokers as portfolio manager on
behalf of its professional clients in relation to financial
instruments that form part, or may become part, of one or
more investment portfolios managed by the Local
Manager for its clients (each so executed or placed order a
"Transaction").
Although the Local Manager's investment decisions and
the corresponding Transactions are primarily based upon
fundamental analysis and a variety of primary and
secondary information sources, external research and
market intelligence from analysts employed by the brokers
the Local Manager may engage to effect Transactions is
valuable in helping to make informed investment decisions
and in those circumstances, will enhance the quality of the
Fund management service provided by the Local Manager
to its clients. The available research covers sectors and
markets in detail and may generate and stimulate new
ideas and discussions. Some research services will be
produced for all clients of the relevant broker, but the
analysts may also provide research that has been tailored
to the Local Manager's specific request, including the
ability to discuss corporate developments in the immediate
aftermath of their announcement (together "Research
Services").
This document is intended to provide the Local Manager's
professional clients with information about the manner in
which the Local Manager, when effecting Transactions,
may make payments on behalf of its client to certain
providers of Research Services and about certain non-
monetary benefits that the Local Manager may receive
from certain brokers in the course of its dealings with such
brokers.
The conditions upon which dealing commissions will be
paid to providers of Research Services
The Local Manager will only make payments to a broker
in consideration of the provision of Research Services
when it is satisfied using its reasonable judgement that the
Research Services received in return for the payments will
reasonably assist the Local Manager in the provision of its
portfolio management services to the investment advisers
on whose behalf the relevant Transactions are being
effected and do not, and are not likely to, impair
compliance with the duty of the Local Manager to act in
the best interests of its clients (including, without
limitation, its obligation to take all reasonable steps to
obtain the best possible result when effecting a
Transaction).
The manner in which dealing commissions are paid to
providers of research services
If the conditions for payment have been satisfied, the
eligible providers of Research Services may be
remunerated for the provision of Research Services as part
of the Local Manager's commission sharing arrangements.
Under the commission sharing arrangements, the Local
Manager will instruct participating brokers to record a
certain portion of dealing commission that is received
pursuant to the completion of a Transaction, based upon a
previously agreed allocation, as research credits (each a
"Pool"). Each of the participating brokers has undertaken
to the Local Manager, periodically, subject to an
instruction from the Local Manager, to make payments
from their Pool to providers of Research Services
(including the administering broker itself) as the Local
Manager may specify in the instruction(s). Any balance
that may remain after allocation instructions have been
carried out will be carried forward to the next period.
The Local Manager allocates the Pools based on a periodic
assessment of the quality of the Research Services
provided to the Local Manager by the participating brokers
during that period. The Local Manager tends to consider,
without limitation, the quality of the analyst service, the
sales service, and the company meetings that have been
arranged with senior management of companies in which
the Local Manager invests for its clients. Decisions are
being taken based on a voting system in which the Local
Manager equity portfolio managers participate. As part of
a relationship management effort, the Local Manager
will meet periodically with those providers of Research
Services that the Local Manager deems most significant.
The conditions upon which the Local Manager
employees may accept non-monetary benefits from
brokers
The Local Manager's employees that interact with brokers
may from time to time receive certain non-monetary
benefits in the form of gifts. The Local Manager has
detailed compliance procedures relating to the standard of
conduct expected from employees in these circumstances
which are designed to achieve that receipt of such gifts
does not, and is not likely to, impair compliance with the
duty of the Local Manager and its employees to act in the
best interests of its clients. Most gifts are received during
the holiday season and depending on the number received
gifts are either put into a raffle or allocated between
employees. Employees are allowed to accept invitations to
attend sporting, artistic or entertainment events from
suppliers and counterparties in accordance with guidelines
and limits that are detailed in the policy.
Schedule 3
INFORMATION ON THE NATURE AND RISKS OF
CERTAIN INVESTMENTS
The information contained in this notice cannot disclose
everything about the nature and risks of all financial
instruments in each Portfolio. Rather it is a general description
of the nature and risks of financial instruments, which explains
the nature of the specific types of instruments which the
Investment Adviser may include in each Portfolio's investment
guidelines (the "Investment Guidelines"), as well as the risks
particular to those instruments. The Investment Adviser
should not include these financial instruments in the
Investment Guidelines unless the Investment Adviser
understand the nature of the financial instruments the
Investment Adviser is permitting Xxxxxx Xxxxxxx Investment
Management Limited (the "Local Manager") to enter into on
the Investment Adviser's behalf and the extent of the
Investment Adviser's exposure to risk. The Investment
Adviser should also be satisfied that such financial instruments
are suitable for each Portfolio in light of the Investment
Adviser's circumstances and financial position. Certain
strategies, such as a spread position or "straddle", may be as
risky as a simple "long" or "short" position. While financial
instruments can be utilised for the management of investment
risk, certain financial instruments are unsuitable for certain
investors. Different financial instruments involve different
levels of exposure to risk, and in deciding whether to include
such instruments in the Investment Guidelines, the Investment
Adviser should be aware of the following points.
1. GENERAL
1.1 Returns
The value of investments and the income from them may
fluctuate and go down as well as up. There is no guarantee
that the investment objective will actually be achieved or that
the Investment Adviser will get back the amount initially
invested. The value of investments may be affected by a
variety of factors, including economic and political
developments, interest rates and foreign exchange rates, as
well as issuer-specific events.
1.2 Currency Risk
Investments denominated in currencies other than the
Investment Adviser's base currency carry the risk of exchange-
rate movements. A movement in exchange rates may have a
separate effect, unfavourable as well as favourable, on gains
and losses in a Portfolio. Hedging techniques may, in certain
circumstances, be limited or not be successful.
1.3 Investments which are not Readily Realisable
The market for some investments may be restricted or illiquid.
Subject to the Investment Guidelines, the Local Manager may
effect transactions in such investments for a Portfolio. There
may be no readily available market and from time to time there
may be difficulty in dealing in such investments or obtaining
reliable information about the value and extent of risks
associated with such investments.
2. EQUITY SECURITIES AND DEBT SECURITIES
Buying equity securities (the most common form of which are
shares) will mean that the Investment Adviser will become a
member of the issuer company and participate fully in its
economic risk. Holding equity securities will generally entitle
the Investment Adviser to receive any dividend distributed
each year (if any) out of the issuer's profits made during the
reference period.
On the other hand, buying debt securities (such as bonds and
certificates of deposit) will mean that the Investment Adviser
is, in effect, a lender to the company or entity that has issued
the securities. Holding debt securities will entitle the
Investment Adviser to receive specified periodic interest
payments, as well as repayment of the principal at maturity.
Generally, holdings in equity securities will expose the
Investment Adviser to more risk than debt securities since
remuneration is tied more closely to the profitability of the
issuer. In the event of insolvency of the issuer, the Investment
Adviser's claims for recovery of the Investment Adviser's
equity investment in the issuer will generally be subordinated
to the claims of both preferred or secured creditors and
ordinary unsecured creditors of the issuer.
There is an extra risk of losing money when shares are bought
in some smaller companies, such as xxxxx shares. There is a
usually big difference between the buying price and the selling
price of these shares. If they have to be sold immediately, the
Investment Adviser may get back much less than was paid for
them. The price may change quickly and it may go down as
well as up.
Holdings in debt securities, on the other hand, generally risk
not being remunerated only if the issuer is in a state of
financial distress. Moreover, in the event of insolvency of the
issuer, the Investment Adviser is likely to be able to participate
with other creditors in the allotment of the proceeds from the
sale of the company's assets in priority to holders of equity
securities.
If the Investment Guidelines allow the Local Manager to buy
equity or debt securities the Investment Adviser will be
exposed to both the specific risks associated with individual
securities held (and the financial soundness of their issuers), as
well as the systemic risks of the equity and debt securities
markets.
3. DERIVATIVES
3.1 Futures
Transactions in futures involve the obligation to make, or to
take, delivery of the underlying asset of the contract at a future
date, or in some cases to settle the Investment Adviser's
position with cash from a Portfolio or elsewhere. Transactions
in futures carry a high degree of risk. The "gearing" or
"leverage" often obtainable in futures trading means that a
small deposit or down payment can lead to large losses as well
as gains. It also means that a relatively small market
movement can lead to a proportionately much larger
movement in the value of the Investment Adviser's
investment, and this can work against the Investment Adviser
as well as for the Investment Adviser. Futures transactions
have a contingent liability, and the Investment Adviser should
be aware of the implications of this, in particular the margining
requirements, which are described in paragraph 7.2 below.
3.2 Options
There are many different types of options with different
characteristics subject to different conditions:
3.2.1 Buying Options:
Allowing the Local Manager to buy options involves less risk
than allowing the Local Manager to sell options because, if the
price of the underlying asset moves against the Investment
Adviser, the Local Manager can simply allow the option to
lapse. The maximum loss is limited to the premium, plus any
commission or other transaction charges. However, if the
Local Manager buys a call option on a futures contract for the
Investment Adviser and later exercises the option, the
Investment Adviser will acquire the future. This will expose
the Investment Adviser to the risks described under "futures"
and "contingent liability transactions".
3.2.2 Writing Options:
If the Investment Guidelines allow the Local Manager to write
an option for the Investment Adviser, the risk involved is
considerably greater than buying options. The Investment
Adviser may be liable for margin to maintain its position and a
loss may be sustained well in excess of any premium received.
By allowing the Local Manager to write an option on the
Investment Adviser's behalf, the Investment Adviser accepts a
legal obligation to purchase or sell the underlying asset if the
option is exercised against the Investment Adviser, however
far the market price has moved away from the exercise price.
If the Investment Adviser already owns the underlying asset
which the Local Manager has contracted on the Investment
Adviser's behalf to sell as part of a Portfolio (known as
"covered call options") the risk is reduced. If the Investment
Adviser does not own the underlying asset (known as
"uncovered call options") the risk can be unlimited. Only
experienced persons should contemplate authorising the Local
Manager to write uncovered options, and then only after
securing full details of the applicable conditions and potential
risk exposure.
3.2.3 Traditional Options:
A particular type of option (called a "traditional option") is
written by certain London Stock Exchange firms under special
exchange rules. These may involve greater risk than other
options. Two way prices are not usually quoted and there is no
exchange market on which to close out an open position. It
may be difficult to assess the value of a traditional option or
for the seller of such an option to manage his exposure to risk.
Again, the Investment Adviser should only provide for the
Investment Guidelines to permit the Local Manager to invest
in "traditional options" if the Investment Adviser is fully aware
of the risks involved.
3.2.4 Margin:
Certain options markets operate on a margined basis, under
which buyers do not pay the full premium on their option at
the time they purchase it. In this situation a Portfolio (or the
Investment Adviser if there are insufficient assets in the Fund)
may subsequently be called upon to pay margin on the option
up to the level of the Investment Adviser's premium. If the
Investment Adviser fails to do so as required, the Investment
Adviser's position may be closed or liquidated in the same
way as a futures position.
3.3 Contracts for Differences:
A contract for difference is a contract between two parties,
buyer and seller, stipulating that the seller will pay to the buyer
the difference between the current value of an asset and its
value at contract time. Contracts for differences allow
investors to take long or short positions, and unlike futures
contracts have no fixed expiry date or contract size. Trades are
conducted on a leveraged basis and these contracts can only be
settled in cash. Investing in a contract for differences carries
the same risks as investing in a future or option and the
Investment Adviser should be aware of these as set out in
paragraphs 3.1 and 3.2 respectively. Transactions in contracts
for differences may also have a contingent liability and the
Investment Adviser should be aware of the implications of this
as set out in paragraph 7.2 below. As with many leveraged
products, maximum exposure is not limited to the initial
investment; it is possible to lose more than one put in.
3.4 Off-Exchange Transactions in Derivatives:
It may not always be apparent whether or not a particular
derivative is on or off-exchange.
While some off-exchange markets are highly liquid,
transactions in off-exchange or non transferable derivatives
may involve greater risk than investing in on-exchange
derivatives because there is no exchange market on which to
close out an open position. It may be impossible to liquidate
an existing position, to assess the value of the position arising
from an off-exchange transaction or to assess the exposure to
risk. Bid and offer prices need not be quoted, and even where
they are, they will be established by dealers in these
instruments and consequently it may be difficult to establish
what a fair price is. The Investment Adviser should only
permit the Local Manager in the Investment Guidelines to
invest a Portfolio in off-exchange derivatives transactions if
the Investment Adviser is fully aware of the risks involved.
3.5 ISDA Master Agreement
Where the Investment Adviser permits the Local Manager
under the Investment Guidelines to enter into derivative
transactions, these may be of the type that may be governed by
the ISDA Master Agreement. The ISDA Master Agreement is
a standard agreement commonly used in the derivatives market
which sets forth key provisions governing the contractual
relationship between the parties to such agreement, including
each of their rights, liabilities and obligations. If the Local
Manager enters into derivative transactions on the Investment
Adviser's behalf, the Local Manager may also enter into a
Credit Support Annex. The Credit Support Annex is an annex
to the ISDA Master Agreement and is used to document
bilateral credit support arrangements between parties for
transactions governed by an ISDA Master Agreement.
On each date on which a derivatives transaction is entered into,
the Investment Adviser will be deemed to have given various
representations and undertakings to each counterparty with
whom the Local Manager enters into an ISDA Master
Agreement on the Investment Adviser's behalf.
In certain circumstances, the Investment Adviser may be
required to pay an additional amount or receive a payment
from which an amount is required to be deducted or withheld,
in each case in respect of any deduction or withholding for on
account of any tax, or be required to pay any stamp tax levied
or imposed in respect of the execution or performance of the
ISDA Master Agreement.
Markets and exchanges require that anyone trading in
derivatives must advance collateral as security for initial and
variation margin requirements. The Local Manager has been
authorised to instruct the Investment Adviser's custodian to
advance cash or other collateral acceptable to the counterparty
or broker to meet margin payments as required by the rules and
regulations of any market or exchange on which derivatives
are dealt by the Local Manager as the Investment Adviser's
agent. If, under the rules and regulations of any exchange or
market, adverse price movements occur and margin calls are
made and insufficient funds are available in the Portfolio to
meet such margin calls, the Local Manager may request that
the Investment Adviser make additional funds immediately
available until assets can be realised to cover the related
margin call. If the Investment Adviser fails to makes such
funds available, the Investment Adviser's positions may be
closed out and liquidated, resulting in a loss to the Portfolio for
which the Local Manager shall not be liable.
4. WARRANTS
If the Investment Guidelines so permit, the Local Manager
may effect transactions in warrants for a Portfolio.
4.1 Warrants:
A warrant is a time-limited right to subscribe for shares,
debentures, loan stock or government securities, and is
exercisable against the original issuer of the securities.
Warrants often involve a high degree of gearing, so that a
relatively small movement in the price of the underlying
security results in a disproportionately large movement,
favourable or unfavourable in the price of the warrant. The
prices of warrants can therefore be volatile. The Investment
Adviser should not include warrants in the Investment
Guidelines unless the Investment Adviser is prepared for a
Portfolio to sustain a total loss of the money the Investment
Adviser has invested plus any commission or other transaction
charges. Some other instruments are also called warrants but
are actually options (for example, a right to acquire securities
which is exercisable against someone other than the original
issuer of the securities, often called a "covered warrant").
If the Investment Adviser is considering including warrants in
the Investment Guidelines, it is essential to understand that the
right to subscribe which a warrant confers is invariably limited
in time. Therefore, if the Investment Adviser fails to exercise
this right within the pre-determined time scale, the investment
becomes worthless.
4.2 Off-Exchange Transactions:
Transactions in off-exchange warrants may involve greater risk
than dealing in exchange traded warrants because there is no
exchange market through which to liquidate the Investment
Adviser's position or to assess the value of the warrant or the
exposure to risk. Bid and offer prices need not be quoted, and
even where they are, they will be established by dealers in
these instruments and consequently it may be difficult to
establish what a fair price is. The Investment Adviser should
only permit the Local Manager in the Investment Guidelines to
invest a Portfolio in off-exchange warrants if the Investment
Adviser is fully aware of the risks involved.
5. COLLECTIVE INVESTMENT SCHEMES
Collective investment schemes (such as investment funds and
open-ended investment companies) invest funds paid by
purchasers of units or shares in the collective investment
scheme in the various types of asset provided for in their rules
or investment plans. As such, collective investment schemes
generally allow unit holders and shareholders to achieve a high
degree of diversification at a relatively low cost. Open-ended
investment funds, for example, allow savers to invest or
disinvest by buying or selling fund units on the basis of the
value of a unit, plus or minus relevant commissions (the value
of the unit being obtained by dividing the value of the entire
portfolio managed by a Portfolio, calculated at market prices,
by the number of units in circulation).
Allowing the Local Manager to purchase units or shares in a
collective investment scheme will expose the Investment
Adviser to the risks associated with the nature of the financial
instruments in which the collective investment scheme invests
and, where relevant, their concentration in a particular sector,
country, region or asset class. Before allowing the Local
Manager to invest in collective investment schemes, the
Investment Adviser should make itself fully aware of the risks
associated with collective investment schemes, including
without limitation, the general risks identified in paragraph 1
above.
6. EXCHANGE TRADED FUNDS
Exchange traded funds ("ETFs") are closed-ended collective
investment schemes, traded as shares on stock exchanges, and
typically replicate a stock market index, market sector,
commodity or basket of assets. As such, they generally
combine the flexibility and tradeability of a share with the
diversification of a collective investment scheme. Where the
Investment Guidelines permit the Local Manager to purchase
ETFs, the Investment Adviser will be exposed to similar risks
as detailed in respect of equity securities and collective
investment schemes, as well as the general risks detailed in
paragraph 1.
7. MISCELLANEOUS
7.1 Overseas Markets:
Overseas markets may involve different risks to the Investment
Adviser's home markets. In some cases the risks will be
greater. In drafting the Investment Guidelines to permit the
Local Manager to invest in overseas markets the Investment
Adviser should make itself fully aware of the risks and
protections (if any) which will operate in any relevant overseas
markets. The potential for profit or loss from transactions on
overseas markets or in contracts denominated other than in a
Portfolio's base currency will be affected by fluctuations in
overseas exchange rates against the Fund's base currency.
7.2 Contingent Liability Investments:
Contingent liability investments are derivatives under the
terms of which the Client will or may be liable to make further
payments (other than charges, and whether or not secured by
margin) when the transaction falls to be completed or upon the
earlier closing out of the Investment Adviser's position.
Contingent liability investments which are margined require a
Portfolio (or the Investment Adviser if there are insufficient
assets in the Fund) to make a series of payments against the
purchase price, instead of paying the whole purchase price
immediately.
If the Investment Adviser permits the Local Manager, as part
of the Investment Guidelines, to trade for a Portfolio in futures,
contracts for differences or write or otherwise deal on margin
in options for the Fund, the Investment Adviser may sustain a
total loss of the margin which the Local Manager, on the
Investment Adviser's behalf, deposits with a broker to
establish or maintain a position. If the market moves against
the Investment Adviser, the Investment Adviser may be called
upon to pay out of the Fund (or the Investment Adviser's other
assets if there are insufficient assets in the Fund) substantial
additional margin at short notice to maintain the position. If
the Investment Adviser fails to do so within the time required,
the Investment Adviser's position may be liquidated at a loss
and the Investment Adviser will be liable for any resulting
deficit.
Even if a transaction is not margined, it may still carry an
obligation to make further payments in certain circumstances
over and above any amount paid when the contract was
entered into. Contingent liability investments which are not
traded on or under the rules of a regulated market may expose
the Investment Adviser and the Fund to substantially greater
risks.
7.3 Collateral:
If the Investment Adviser permits the Local Manager as part of
the Investment Guidelines to enter into transactions which
require the Investment Adviser to deposit collateral as security
with a broker, the way in which such collateral will be treated
will vary according to the type of transaction and where it is
traded. There could be significant differences in the treatment
of the Investment Adviser's collateral depending on whether
the trading is on a regulated market, with the rules of that
market (and associated clearing house) applying, or is off-
exchange. Deposited collateral may lose its identity as the
Investment Adviser's property once dealings on the Investment
Adviser's behalf are undertaken. Even if the Investment
Adviser's dealings should ultimately prove profitable, the
Investment Adviser may not get back the same assets which
the Local Manager deposited on the Investment Adviser's
behalf and may have to accept payment in cash.
7.4 Commissions:
The Investment Adviser is liable for all commissions and it
may be the case that charges are not expressed in money terms
(but for example, as a percentage of contract value). In the
case of futures, when commission is charged as a percentage, it
will normally be as a percentage of the total contract value,
and not simply as a percentage of the Investment Adviser's
initial payment.
7.5 Suspensions of Trading:
Under certain trading conditions or the application of certain
rules in force in some markets (such as circuit breakers) it may
be difficult or impossible for the Local Manager to liquidate a
position held for the Investment Adviser. This may occur, for
example, at times of rapid price movement if the price of an
investment rises or falls in one trading session to such an
extent that under the rules of the relevant exchange trading of
that investment is suspended or restricted. Further, the Local
Manager placing a stop-loss order on the Investment Adviser's
behalf will not necessarily limit losses to the intended amounts
because market conditions may make it impossible to execute
such an order at the stipulated price. Most electronic and
auction trading systems are supported by computerised
systems for order routing and trade checking, recording and
clearing. Like all automated procedures, these systems are
subject to the risk of stoppages and malfunctions, which may
result in the Investment Adviser's orders not being executed in
accordance with the Local Manager's instructions or remaining
unexecuted.
7.6 Clearing House Protections:
On many exchanges, the performance of a transaction by a
broker (or the third party with whom he is dealing on the
Investment Adviser's behalf) is "guaranteed" by the exchange
or its clearing house. However, this guarantee is unlikely in
most circumstances to cover the Investment Adviser and may
not protect the Investment Adviser if the broker or another
party defaults on its obligations to the Investment Adviser.
There is no clearing house for traditional options, nor normally
for instruments which are not traded under the rules of a
recognised or designated investment exchange.
7.7 Insolvency:
A derivative broker's insolvency or default, or that of any
other brokers involved with the Investment Adviser's
transaction, may lead to positions being liquidated or closed
out without the Investment Adviser's or the Local Manager's
consent or knowledge. In certain circumstances, the
Investment Adviser may not get back the actual assets which
the Investment Adviser lodged as collateral and the Investment
Adviser may have to accept any available payment in cash.
3
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Sch. A-1
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Annex-3
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Annex-1
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Sch. 1-2
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Sch. 1-1
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Sch. 2-3
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Sch. 2-1
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Sch. 3-1
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