SUB-ADVISORY AGREEMENT
AGREEMENT made as of the 11th day of August, 2003, by and between XXXXXX
XXXXXXX INVESTMENT ADVISORS INC., a Delaware corporation (hereinafter referred
to as "Xxxxxx Xxxxxxx Investment Advisors"), 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, Xxxxxx Xxxxxxx International SmallCap Fund (the "Fund") is a
Massachusetts business trust engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, Xxxxxx Xxxxxxx Investment Advisors and the Local Manager are
engaged principally in rendering investment advisory services and are registered
as investment advisers under the Investment Advisors Act of 1940, as amended;
and
WHEREAS, the Local Manager is regulated by the Financial Services Authority
in the United Kingdom; and
WHEREAS, Xxxxxx Xxxxxxx Investment Advisors has entered into an investment
advisory agreement (the "Advisory Agreement") with the Fund dated May 31, 1997,
pursuant to which Xxxxxx Xxxxxxx Investment Advisors provides management and
investment and advisory services to the Fund; and
WHEREAS, the Local Manager is willing to provide investment management
services to Xxxxxx Xxxxxxx Investment Advisors in connection with the Fund's
operations on the terms and conditions hereinafter set forth and including the
terms and conditions contained in Annex 1 and Annex 2 to this Agreement;
NOW THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Local Manager and Xxxxxx Xxxxxxx Investment Advisors
hereby agree as follows:
ARTICLE I
DUTIES OF THE LOCAL MANAGER
Xxxxxx Xxxxxxx Investment Advisors hereby employs the Local Manager to act
as discretionary investment manager to Xxxxxx Xxxxxxx Investment Advisors and to
furnish the investment management services described below, subject to the broad
supervision of Xxxxxx Xxxxxxx Investment Advisors 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.
Xxxxxx Xxxxxxx Investment Advisors and its affiliates shall for all purposes
herein be deemed an Intermediate Customer as defined under the rules and
guidance promulgated by the Financial Services Authority (hereinafter referred
to as the "FSA Rules"). The Local Manager and its affiliates shall for all
purposes herein 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 the Fund. 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 the Fund, 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 the Fund shall be exercised. All of the foregoing is
subject always to the restrictions of the Declaration of Trust 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 Xxxxxx Xxxxxxx Investment Advisors, the
provisions of the Investment Company Act and the statements relating to the
Fund'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 Xxxxxx Xxxxxxx
Investment Advisors and the Board of Trustees of the Fund.
The Local Manager will not hold money on behalf of Xxxxxx Xxxxxxx
Investment Advisors or the Fund, nor will the Local Manager be the registered
holder of the registered investment of Xxxxxx Xxxxxxx Investment Advisors 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
Sub-Advisory 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, Xxxxxx Xxxxxxx Investment Advisors shall pay to the Local
Manager a fee in an amount to be determined from time to time by Xxxxxx Xxxxxxx
Investment Advisors and the Local Manager but in no event in excess of the
amount that Xxxxxx Xxxxxxx Investment Advisors actually received for providing
services to the Fund pursuant to the Advisory Agreement.
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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 of them.
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 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 Xxxxxx Xxxxxxx Investment
Advisors 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 Xxxxxx Xxxxxxx Investment Advisors' 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, FSA Rules
or the Regulatory System in relation to Xxxxxx Xxxxxxx Investment Advisors 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 management 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.
ARTICLE V
ACTIVITIES OF THE LOCAL MANAGER
The services of the Local Manager to the Fund 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
Trustees, 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 as of the date first above written
and shall remain in force until the date of termination of the Advisory
Agreement (but not later than two years after the date hereof) and thereafter,
but only so long as such continuance is specifically approved at least annually
by (i) the Trustees of the Fund or by the vote of a majority of the outstanding
voting securities of the Fund and (ii) a
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majority of those Trustees 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, without the payment of any
penalty, by Xxxxxx Xxxxxxx Investment Advisors, by the Board of Trustees of the
Fund or by vote of a majority of the outstanding voting securities of the Fund,
or by the Local Manager, on sixty days' written notice to the other party. This
Agreement shall automatically terminate in the event of its assignment or in the
event of the termination of the Advisory Agreement. Any termination shall be
without prejudice to the completion of transactions already initiated.
ARTICLE VII
AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the Trustees of the Fund or by the vote of a
majority of outstanding voting securities of the Fund and (ii) a majority of
those Trustees 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.
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XXXXXX XXXXXXX INVESTMENT ADVISORS INC.
By: /S/ Xxxxxx X. Xxxxxxx
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Name: Xxxxxx X. Xxxxxxx
Title: Managing Director
XXXXXX XXXXXXX INVESTMENT MANAGEMENT LIMITED
By: /S/ Xxxxxx Xxxxxxx
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Name: Xxxxxx Xxxxxxx
Title: Managing Director
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SUB-ADVISORY AGREEMENT
ANNEX 1
1. DEALING AND COUNTERPARTIES
1.1 The Local Manager will act in good faith and with due diligence in its
choice and use of counterparties. Unless directed by Xxxxxx Xxxxxxx
Investment Advisors or the Fund to use a specific counterparty, the Local
Manager undertakes to secure Best Execution (as defined in the FSA Rules)
of all the Fund's transactions. In securing Best Execution, the Local
Manager will take reasonable care to obtain the best available price in
accordance with FSA Rules. Subject thereto, the Local Manager may deal on
such markets or exchanges and with such counterparties (including 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.
1.2 If any counterparty should fail to deliver any necessary documents or to
complete any transaction, the Local Manager will take all reasonable steps
on behalf of Xxxxxx Xxxxxxx Investment Advisors or the Fund to rectify such
failure or obtain compensation. Xxxxxx Xxxxxxx Investment Advisors shall
procure that the Fund pay all reasonable costs and expenses properly
incurred by the Local Manager.
1.3 The Local Manager may enter into soft commission arrangements from time to
time with brokers who provide the Local Manager with research, and research
related services. The Local Manager will secure Best Execution on all such
transactions disregarding any benefit to the portfolio of assets of the
Fund arising from such service. Annex 2 sets out the Local Manager's policy
on soft commission. The Local Manager will provide Xxxxxx Xxxxxxx
Investment Advisors with a general soft commission statement on at least an
annual basis showing the amount of soft commission paid by the Local
Manager as a percentage of the total commission paid during the year, total
commission paid from the Fund's portfolio of assets during the year, and a
description of the research and research related services received during
the year.
1.4 The Local Manager may aggregate the Fund's orders with orders of other
clients (whether or not connected with the Local Manager). Xxxxxx Xxxxxxx
Investment Advisors is aware and has made the Fund aware that the
aggregation of the Fund's orders with those of other clients may result in
the Fund obtaining on some occasions a more favourable price and on others
a less favourable price, than if such orders had not been aggregated.
2. MATERIAL INTERESTS
2.1 The Local Manager and any 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
Xxxxxx Xxxxxxx Investment Advisors or the Fund, 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
Xxxxxx Xxxxxxx Investment Advisors or the Fund. Neither the
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Local Manager nor any affiliate shall be liable to account to Xxxxxx
Xxxxxxx Investment Advisors or the Fund 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:
(a) 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 Fund;
(b) 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;
(c) the Local Manager deals on behalf of the Fund with an affiliate;
(e) the Local Manager may effect transactions involving placings and/or
new issues with an Affiliate who may be acting as principal or
receiving agent's commission. Affiliates may retain any agent's
commission or discount or other benefit (including directors' fees)
that accrues to them; or
(f) 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.
2.2 Nothing in this Agreement shall oblige the Local Manager or any affiliate
to accept responsibilities more extensive than those set out in this
Agreement or shall give rise to any fiduciary or equitable duties which
would prevent or hinder any 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.
3. RECORDS AND REPORTS
3.1 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 Xxxxxx Xxxxxxx Investment Advisors or
with the Fund.
3.2 All records held pursuant to this clause by the Local Manager shall be open
to inspection by Xxxxxx Xxxxxxx Investment Advisors or the Fund and the
Local Manager will provide Xxxxxx Xxxxxxx Investment Advisors and the Fund
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 Xxxxxx Xxxxxxx Investment Advisors or the
Fund.
3.3 The Local Manager shall, not later than 10 working days following the end
of each calendar month, furnish to Xxxxxx Xxxxxxx Investment Advisors a
statement showing all transactions that have occurred in the Fund and a
monthly listing of all investments and cash balances held as of the end of
such month.
3.4 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 the Fund and any income
arising on the Fund's account during the relevant calendar
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month, and will also include a statement showing the measure of the
performance of the assets of the Fund. The basis of all valuations will be
as stated in the first monthly statement, unless otherwise agreed.
3.5 The Local Manager will not provide Xxxxxx Xxxxxxx Investment Advisors with
an individual trade confirmation of each portfolio transaction unless
Xxxxxx Xxxxxxx Investment Advisors has specifically requested the Local
Manager to do so.
4. FORCE MAJEURE
The Local Manager shall not be responsible or liable to Xxxxxx Xxxxxxx
Investment Advisors or the Fund 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.
5. COMPLAINTS
The Local Manager maintains procedures in accordance with FSA 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.
6. CONFIDENTIALITY AND DISCLOSURE
The Local Manager and Xxxxxx Xxxxxxx Investment Advisors 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 FSA,
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 the Fund 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.
7. DATA PROTECTION
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7.1 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").
7.2 Xxxxxx Xxxxxxx Investment Advisors 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.
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SUB-ADVISORY AGREEMENT
ANNEX 2
XXXXXX XXXXXXX INVESTMENT MANAGEMENT LIMITED
SOFT COMMISSION POLICY
Soft commission arrangements are defined as arrangements whereby the
Investment Manager executes portfolio transactions through a particular broker
in return for the payment or provision of research related services. Such
arrangements are also known as soft dollar arrangements. Because Xxxxxx Xxxxxxx
Investment Management Limited ("MS Investment Management Limited") is a US
registered investment advisor, you receive from us an annual SEC Form ADV which
provides information concerning our soft commission policy. As stated in our ADV
Form, it is MS Investment Management Limited's policy, consistent with the
obligation to seek the most favourable price and execution, to effect
transactions from time to time with brokers which pay for research services
provided by third parties in accordance with Section 28(e) of the Securities
Exchange Act of 1934, as amended.
Under the rules of the Financial Services Authority "FSA" (a UK regulatory body
which also governs our business), we will be providing you each year with a
summary of our soft commission arrangements showing the amount of soft
commissions we generated for the year reflected as a percentage of our total
commission business together with a summary of the research and research related
services received by us.
We would like to take this opportunity to discuss our rationale for entering
into such arrangements. The type of research related services we typically
receive from our soft commission brokers includes market intelligence data,
stock pricing and rating information and specialty computer software and
hardware, all of which provide our fund managers with valuable assistance in the
decision making process. Although each and every service received may not be
used for the benefit of all of our clients, we believe that those services
received are, on aggregate, of significant assistance in fulfilling our
investment responsibilities to all our clients. The receipt of these services
does not cause our clients to incur additional execution or commission costs.
Under the FSA rules, soft commission brokers have an obligation to achieve best
execution on each transaction and a soft commission broker will charge a
comparable commission rate to a "traditional" or non-soft commission broker. As
commission rates are generally subject to negotiation, we carefully monitor and
negotiate commission rates to ensure they are competitive within the relevant
market. Given that similar dealing costs will be incurred whether we use a soft
commission broker or a traditional broker, we believe it is in our clients'
interests for us to use soft commission brokers because our investment
management capabilities are enhanced at no additional cost to our clients.
Xxxxxx Xxxxxxx Investment Management Limited has entered into Soft Commission
Agreements with the following brokers:
Instinet Investment Services Limited
Xxxxxx & Company Limited
Xxxxxx Brothers
Merrill Xxxxx International
January, 2003
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