UNDISCOVERED MANAGERS FUNDS
FORM OF SUB-ADVISORY AGREEMENT
(Undiscovered Managers Small Cap Value Fund)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
[________ ___, ______] by and between Undiscovered Managers, LLC, a Delaware
limited liability company (the "Manager"), and X.X. Xxxxxx Associates, LLC, a
Delaware limited liability company (the "Sub-Adviser").
WHEREAS, the Manager has entered into a Management Agreement dated
August 1, 2001 (the "Management Agreement") with Undiscovered Managers Funds
(the "Trust"), pursuant to which the Manager provides portfolio management and
administrative services to the Small Cap Value Fund of the Trust (the "Series");
WHEREAS, the Management Agreement provides that the Manager may
delegate any or all of its portfolio management responsibilities under the
Management Agreement to one or more sub-advisers; and
WHEREAS, the Manager desires to retain the Sub-Adviser to render
portfolio management services in the manner and on the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
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a) The Sub-Adviser shall, subject to the supervision of the Manager and
in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the
assets of the Series. The Sub-Adviser shall manage the Series in
conformity with (1) the investment objective, policies and
restrictions of the Series set forth in the Trust's prospectus and
statement of additional information relating to the Series, (2) any
additional policies or guidelines established by the Manager or by
the Trust's trustees that have been furnished in writing to the
Sub-Adviser and (3) the provisions of the Internal Revenue Code (the
"Code") applicable to "regulated investment companies" (as defined
in Section 851 of the Code), all as from time to time in effect
(collectively, the "Policies"), and with all applicable provisions
of law, including without limitation all applicable provisions of
the Investment Company Act of 1940 (the "1940 Act") and the
rules and regulations thereunder. Subject to the foregoing, the
Sub-Adviser is authorized, in its discretion and without prior
consultation with the Manager, to buy, sell, lend and otherwise trade
in any stocks, bonds and other securities and investment
instruments on behalf of the Series, without regard to the length of
time the securities have been held and the resulting rate of portfolio
turnover or any tax considerations; and the majority or the whole of
the Series may be invested in such proportions of stocks, bonds,
other securities or investment instruments, or cash, as the
Sub-Adviser shall determine. Notwithstanding the foregoing
provisions of this Section 1.a, however, the Sub-Adviser shall,
upon written instructions from the Manager, effect such portfolio
transactions for the Series as the Manager shall determine are
necessary in order for the Series to comply with the Policies.
b) The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning portfolio
transactions and performance of the Series in such form as may be
mutually agreed upon, and agrees to review the Series and discuss the
management of the Series with representatives or agents of the
Manager, the Administrator or the Trust at their reasonable request.
The Sub-Adviser shall permit all books and records with respect
to the Series to be inspected and audited by the Manager and the
Administrator at all reasonable times during normal business hours,
upon reasonable notice. The Sub-Adviser shall also provide the
Manager, the Administrator or the Trust with such other information
and reports as may reasonably be requested by the Manager, the
Administrator or the Trust from time to time, including without
limitation all material as reasonably may be requested by the trustees
of the Trust pursuant to Section 15(c) of the 0000 Xxx.
c) The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and as amended from time to time and a list of the persons
whom the Sub-Adviser wishes to have authorized to give written and/or
oral instructions to custodians of assets of the Series.
d) The Sub-Adviser shall be bound by the Code of Ethics of Undiscovered
Managers Funds as such Code of Ethics is amended or superseded from
time to time.
2. Obligations of the Manager.
a) The Manager shall provide (or cause the Trust's custodian to provide)
timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash
available for investment in the Series, and all other information as
may be reasonably necessary for the Sub-Adviser to perform its
responsibilities hereunder.
b) The Manager has furnished the Sub-Adviser a copy of the prospectus and
statement of additional information of the Series and agrees during the
continuance of this Agreement to furnish the Sub-Adviser copies of any
revisions or supplements thereto at, or, if practicable, before the
time the revisions or supplements become effective. The Manager agrees
to furnish the Sub-Adviser with minutes of meetings of the trustees of
the Trust applicable to the Series to the extent they may affect the
duties of the Sub-Adviser, and with copies of any financial statements
or reports made by the Series to its shareholders, and any further
materials or information which the Sub-Adviser may reasonably request
to enable it to perform its functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of the
Series' agreement with the custodian designated to hold the assets of the Series
(the "Custodian") and any modifications thereto (the "Custody Agreement"),
copies of such modifications to be provided to the Sub-Adviser a reasonable time
in advance of the effectiveness of such modifications. The assets of the Series
shall be maintained in the custody of the Custodian identified in, and in
accordance with the terms and conditions of, the Custody Agreement (or any
sub-custodian properly appointed as provided in the Custody Agreement). The
Sub-Adviser shall have no liability for the acts or omissions of the Custodian,
unless such act or omission is required by and taken in reliance upon
instructions given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instructions under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
4. Expenses. Except for expenses specifically assumed or agreed to be paid by
the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for any
expenses of the Manager or the Trust including, without limitation, (a) interest
and taxes, (b) brokerage commissions and other costs in connection with the
purchase or sale of securities or other investment instruments with respect to
the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay or
arrange for payment of its own expenses incurred in furnishing the services to
be provided by it pursuant to this Agreement.
5. Purchase and Sale of Assets. Absent instructions from the Manager to the
contrary, the Sub-Adviser shall place all orders for the purchase and sale of
securities for the Series with brokers or dealers selected by the Sub-Adviser,
which may include brokers or dealers affiliated with the Sub-Adviser, provided
such orders comply with Rule 17e-1 under the 1940 Act in all respects. To the
extent consistent with applicable law, purchase or sell orders for the Series
may be aggregated with contemporaneous purchase or sell orders of other clients
of the Sub-Adviser. The Sub-Adviser shall use its best efforts to obtain
execution of transactions for the Series at prices which are advantageous to the
Series and at commission rates that are reasonable in relation to the benefits
received. However, the Sub-Adviser may select brokers or dealers on the basis
that they provide brokerage, research or other services or products to the
Series and/or other accounts serviced by the Sub-Adviser. To the extent
consistent with applicable law, the Sub-Adviser may pay a broker or dealer an
amount of commission for effecting a securities transaction in excess of the
amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination with respect to brokerage and research services or
products may be viewed in terms of either that particular transaction or the
overall responsibilities that the Sub-Adviser and its affiliates have with
respect to the Series or to accounts over which they exercise investment
discretion. Not all such services or products need be used by the Sub-Adviser in
managing the Series.
6. Compensation of the Sub-Adviser. As full compensation for all services
rendered, facilities furnished and expenses borne by the Sub-Adviser hereunder,
the Manager shall pay the Sub-Adviser compensation at the annual rate of 0.70%
of the first $200 million of the Series' average daily net assets, 0.65% of the
next $100 million of such assets and 0.60% of such assets in excess of $300
million. Such compensation shall be calculated and paid monthly in arrears or at
such other intervals, not less frequently than quarterly, as the Manager is paid
by the Series pursuant to the Management Agreement; provided that, in the event
of any termination of this Agreement before the end of any such month or other
interval, such compensation shall be calculated and paid within ten business
days following such termination. The Manager may from time to time waive the
compensation it is entitled to receive from the Trust; however, any such waiver
will have no effect on the Manager's obligation to pay the Sub-Adviser the
compensation provided for herein.
7. Non-Exclusivity. The Manager and the Series agree that the services of the
Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and its
affiliates are free to act as investment manager and provide other services to
various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager may otherwise agree from time to time in writing
before or after the date hereof. This Agreement shall not in any way limit or
restrict the Sub-Adviser or any of its directors, officers, employees or agents
from buying, selling or trading any securities or other investment instruments
for its or their own account or for the account of others for whom it or they
may be acting. The Sub-Adviser shall have no obligation to acquire for the
Series a position in any investment that the Sub-Adviser or any of its managers,
members, officers, employees or agents holds, has acquired or is acquiring for
its or their own accounts or for the account of another client, so long as it
continues to be the policy and practice of the Sub-Adviser not to favor or
disfavor consistently or consciously any client or class of clients in the
allocation of investment opportunities, so that, to the extent practical, such
opportunities will be allocated among clients over a reasonable period of time
on a fair and equitable basis. The Manager and the Series recognize and agree
that the Sub-Adviser may provide advice to or take action with respect to other
clients, which advice or action, including the timing and nature of such action,
may differ from or be identical to advice given or action taken with respect to
the Series. The Sub-Adviser shall for all purposes hereof be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent the Trust or the Manager in any way or
otherwise be deemed an agent of the Trust or the Manager.
8. Liability. Except as may otherwise be provided by the 1940 Act or other
federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties.
9. Effective Date and Termination. This Agreement shall become effective
as of the date of its execution, and
a) unless otherwise terminated, this Agreement shall continue in effect
for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of the Series, and (ii)
by vote of a majority of the trustees of the Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, cast
in person at a meeting called for the purpose of voting on such
approval;
b) this Agreement may at any time be terminated on sixty days' written
notice to the Sub-Adviser by the Manager, by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series; and
c) this Agreement shall automatically terminate in the event of its
assignment. Termination of this Agreement pursuant to this
Section 9 shall be without the payment of any penalty.
10. Amendment. This Agreement may be amended at any time by mutual consent of
the Manager and the Sub-Adviser, provided that, if required by law, such
amendment shall also have been approved by vote of a majority of the outstanding
voting securities of the Series and by vote of a majority of the trustees of the
Trust who are not interested persons of the Trust, the Manager or the
Sub-Adviser, cast in person at a meeting called for the purpose of voting on
such approval.
11. Certain Definitions. For the purpose of this Agreement, the terms "vote of a
majority of the outstanding voting securities," "interested person," "affiliated
person" and "assignment" shall have their respective meanings defined in the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under the 1940 Act.
12. General.
If any term or provision of this Agreement or the application thereof to any
person or circumstances is held to be invalid or unenforceable to any extent,
the remainder of this Agreement or the application of such provision to other
persons or circumstances shall not be affected thereby and shall be enforced to
the fullest extent permitted by law.
This Agreement shall be governed by and interpreted in accordance with the laws
of the Commonwealth of Massachusetts.
UNDISCOVERED MANAGERS, LLC
By:______________________________________
Xxxx X. Xxxxxx
Chairman and CEO
X.X. XXXXXX ASSOCIATES, LLC
By:______________________________________
Xxxxx X. Xxxxxx
President
