Exhibit d (x) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
INDEPENDENCE ONE MUTUAL FUNDS
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made between Michigan National Bank, a national
banking association (hereinafter referred to as "Adviser") and National
Australia Asset Management Limited, located in Melbourne, Australia (hereinafter
referred to as the "Sub-Adviser").
WITNESSETH:
That the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Notice of Advice. Pursuant to its Investment Advisory Contract with
the Independence One Mutual Funds ("Trust"), and subject to the direction of the
Trustees of the Trust ("Trustees"), the Adviser has been retained to provide
investment advisory services to the Independence One International Equity Fund,
a portfolio of the Trust ("Fund"). Interests in the Fund may be offered in one
or more classes of shares ("Classes"). Pursuant to Paragraph 8 of the Investment
Advisory Contract, Adviser wishes to retain Sub-Adviser to provide, and
Sub-Adviser agrees to furnish, a continuous investment program for the Fund,
including investment research and management with respect to all securities and
investments in the Fund, other than assets retained by the Advisor in its
discretion. The Sub-Adviser will determine from time to time what securities and
other investments will be purchased, retained, or sold by the Fund. The
Sub-Adviser will provide the services rendered by it hereunder subject to the
direction of the Trustees and the Adviser, and in conformity with: The Fund's
investment objective(s) and policies as stated in the Fund's then-current
Registration Statement on Form N-1A; all applicable Rules and Regulations of the
US Securities and Exchange Commission; and the Securities Act of 1933, the
Investment Company Act of 1940, and the Investment Advisers Act of 1940, all as
amended. In connection with its services to the Fund, Sub-Adviser will submit
for the Adviser's approval a written description of the Sub-Adviser's investment
philosophy and process, performance objective and benchmark, investment
guidelines, and listing of reports to be provided, all as may be adjusted from
time to time. Sub-Adviser acknowledges that Adviser will retain direct
responsibilities for: investment research and management with respect to the
U.S. dollar-denominated cash and cash equivalents in the Fund; the selection and
compensation of the Sub-Adviser; the review of all purchases and sales of
portfolio instruments made by the Fund to assess compliance with its stated
investment objective and policies; the monitoring of the selection of brokers
and dealers effecting transactions on behalf of the Fund; the maintenance and
furnishing of all required records or reports pertaining to the Fund to the
extent those records or reports are not maintained or furnished by the
Sub-Adviser or other agents employed by the Fund.
2. Representations of Sub-Adviser. Sub-Adviser hereby represents to
Adviser that it is duly registered as an investment adviser with (a) the United
States Securities and Exchange Commission pursuant to the Investment Advisers
Act of 1940, and (b) any state authorities with which such registration is
necessary in order to lawfully provide services pursuant to this Agreement.
Sub-Adviser hereby agrees to maintain such registrations in effect for so long
as it continues to provide services pursuant to this Agreement and to notify
Adviser immediately upon termination or revocation of any such registration
during such period.
3. Brokerage. Sub-Adviser may place orders for the execution of
transactions with or through such broker-dealers (including floor brokers) or
banks as Sub-Adviser may select, subject to the Adviser's review. Any accounts
opened with such broker-dealers or banks shall be in the name of the Fund.
4. Records and Confirms. Sub-Adviser will send Adviser a record of the
investments and positions of Fund as soon as reasonably possible after the end
of each quarterly period. Copies of confirmations of transactions executed for
the Fund will be sent by the broker-dealers executing the transactions promptly
to the custodian for the Fund and the Sub-Adviser, if the custodian is other
than the broker-dealer. Otherwise, copies of confirmations of transactions
executed will be sent by the broker-dealers executing the transactions to
Sub-Adviser and the Fund. Sub-Adviser does not assume responsibility for the
accuracy of information furnished by Adviser or any other party.
5. Confidentiality. All information and advice furnished by either
party hereto to the other shall be treated as confidential and shall not be
disclosed to third parties, unless generally known or otherwise publicly
available, and except as required by regulatory agencies or otherwise by law.
6. Other Clients. Sub-Adviser acts as adviser to other clients and may
give advice, and take action, with respect to any of those which may differ from
the advice given, or the timing or nature of action taken, with respect to the
Fund. Sub-Adviser shall have no obligation to purchase or sell for the Fund, or
to recommend for purchase or sale by the Fund, any security which Sub-Adviser,
its principals, affiliates or employees may purchase or sell for themselves or
for any other clients. Except as otherwise required by law, Sub-Adviser shall
not make any information about the accounts of its clients available to Adviser
or the Fund.
Adviser recognizes that transactions in a specific security or
securities may not be accomplished for all client accounts at the same time or
at the same price.
In the performance of Sub-Adviser's services hereunder, Sub-Adviser
shall not be liable for any failure to recommend or effect any purchase or sale,
or other investment or trading strategy on the basis of any information known to
Sub-Adviser where the utilization of such information might, in Sub-Adviser's
opinion, constitute a violation of any federal or state law, rules or
regulations, or the breach of any fiduciary duty or confidential relationship
between Sub-Adviser and any other person or persons
7. Adviser's Representations. Adviser represents that it has full
authority to grant Sub-Adviser the authority given to Sub-Adviser under this
Agreement.
8. Fees. For its services under this Agreement, Sub-Adviser shall
receive from Adviser an annual fee ("the Sub-Advisory Fee"), as set forth in
Exhibit A attached hereto.
Notwithstanding any other provision of this Agreement, the Sub-Adviser
may from time to time and for such periods as it deems appropriate, reduce its
compensation (and, if appropriate, assume expenses of the Fund or Class of the
Fund) to the extent that the Fund's expenses exceed such expense limitation as
the Sub-Adviser may, by notice to the Trust on behalf of the Fund, voluntarily
declare to be effective.
9. Term. This Agreement shall begin for the Fund on the date that the
parties execute this Agreement relating to such Fund and shall continue in
effect for the Fund for two years from the date of its execution and from year
to year thereafter, subject to the provisions for termination and all of the
other terms and conditions hereof if: (a) such continuation shall be
specifically approved at least annually by the vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are not parties
to this Agreement or interested persons of any such party (other than as
Trustees of the Trust) cast in person at a meeting called for that purpose; and
(b) Adviser shall not have notified the Trust in writing at least sixty (60)
days prior to the anniversary date of this Agreement in any year thereafter that
is does not desire such continuation with respect to the Fund.
10. Termination. Notwithstanding any provision in this Agreement, it
may be terminated at any time without the payment of any penalty: (a) by the
Trustees of the Trust or by a vote of a majority of the outstanding voting
securities (as defined in Section 2(a)(42) of the Investment Company Act of 1940
(the "Act")) of the Fund on sixy (60) days' written notice to Adviser; and (b)
by Sub-Adviser or Adviser upon sixty (60) days written notice to the other party
to the Agreement.
11. Automatic Termination. This Agreement shall automatically
terminate:
(a) in the event of its assignment (as defined in the Act); or
(b) in the event of termination of the Investment Advisory
Contract between the Trust and Adviser ("Investment Advisory
Contract" for any reason whatsoever.
12. Limitation of Authority. Neither Adviser nor Sub-Adviser shall act
as an investment adviser (as such term is defined in the Act) to the Fund except
as provided herein and in the Investment Advisory Contract between the Adviser
and the Fund or in such other manner as may be expressly agreed between Adviser
and Sub-Adviser.
Provided, however, that if the Adviser or Sub-Adviser shall resign
prior to the end of any term of this Agreement or for any reason be unable or
unwilling to serve for a successive term which has been approved by the Trustees
of the Trust pursuant to the provisions of Paragraph 10 of this Agreement or
Paragraph 6 of the Investment Advisory Contract, the remaining party,
Sub-Adviser or Adviser as the case may be, shall not be prohibited from serving
as an investment adviser to such Fund by reason of the provisions of this
Paragraph 13.
13. Notices. Notices regarding termination or other matters of this
Agreement or other matters shall be sent by certified mail or overnight by a
nationally recognized courier and shall be deemed given when received at the
addresses specified below, or at such other address as a party to receive notice
may specify in a notice given in accordance with this provision. Sub-Adviser may
rely on any notice from any person reasonably believed to be genuine and
authorized.
If to Sub-Adviser: If to Adviser:
National Australia Asset Management Limited Michigan National Bank
Xxxxx 0 00000 Xxxxxxx Xxxx
000 Xxxxxxx Xxxxxx Xxxxxxxxxx Xxxxx, XX 00000
Xxxxxxxxx Xxxxxxxx 0000 Xxxxxxxxx Attn: Xxxxxx X. Xxxxxxxxx, Xx.
Attn: Xxxxxxxx Xxxxxxxx
14. Indemnification. (a) (i) In any threatened, pending or completed
action, suit or proceeding to which the Sub-Adviser, was, is or is threatened to
be made a party, in connection with or relating to the services performed by the
Sub-Adviser for the Adviser or the Fund as contemplated herein, including,
without limitation, any breach of any representations, warranties or covenants
made by the Adviser in this Agreement or any failure by the Adviser to comply
with the federal or any state securities laws or the rules and regulations
promulgated thereunder or any other federal or state law, or any rule or
regulation promulgated by a governmental agency or self-regulatory organization,
Adviser shall indemnify and hold harmless the Sub-Adviser, against any loss,
liability, damage, cost and expense (including reasonable attorneys' and
accountants' fees and disbursements) incurred or suffered by the Sub-Adviser in
connection with the investigation, defense or settlement of any such action,
suit or proceeding, only if the acts or omissions of the Sub-Adviser, did not
involve willful misfeasance, gross negligence, bad faith or reckless disregard
of its duties and obligations under this Agreement; and (ii) In the event that
the Sub-Adviser is made a party to any claim, dispute or litigation or otherwise
incurs any loss or expense as a result of or in connection with the activities
or claimed activities of Adviser or its partners, officers, directors,
employees, agents or affiliates unrelated to the Sub-Adviser or the
Sub-Adviser's business, Adviser shall indemnify, defend and hold harmless the
Sub-Adviser against any loss, liability, damage, cost and expense (including,
without limitation, reasonable attorneys' and accountants' fees and
disbursements to be paid as incurred) incurred in connection therewith. As used
in subparagraphs (i) through (ii) above, the term "Sub-Adviser" shall include
the Sub-Adviser's directors, officers, shareholders, employees, agents and
affiliates.
(b) (i) In any threatened, pending or contemplated action, suit or
proceeding to which the Adviser, was, is or is threatened to be made a party, in
connection with or relating to the services performed by the Sub-Adviser for the
Adviser or the Fund as contemplated herein, including, without limitation, any
breach of any representations, warranties or covenants made by Sub-Adviser in
this Agreement or any failure by Sub-Adviser to comply with the federal or any
state securities laws or the rules and regulations promulgated thereunder or any
other federal or state law, or any rule or regulation promulgated by any
governmental agency or self-regulatory organization, Sub-Adviser shall indemnify
and hold harmless the Adviser, against any loss, liability, damage, cost and
expense (including reasonable attorneys' and accountants' fees and
disbursements) incurred or suffered by the Adviser in connection with the
investigation, defense or settlement of any such action, suit or proceeding,
only if the acts or omissions of the Adviser did not involve willful
misfeasance, gross negligence, bad faith or reckless disregard of its duties and
obligations under this Agreement; and (ii) In the event that the Adviser is made
a party to any claim, dispute or litigation or otherwise incurs any loss or
expense as a result of or in connection with the activities or claimed
activities of Sub-Adviser or its officers, directors, employees, agents or
affiliates unrelated to the Adviser or the Adviser's business, Sub-Adviser shall
indemnify, defend and hold harmless the Adviser against any loss, liability,
damage, cost and expense (including, without limitation, reasonable attorneys'
and accountants' fees and disbursements to be paid as incurred) incurred in
connection therewith. As used in subparagraphs (i) through (ii) above, the term
"Adviser" shall include the Adviser and the Adviser's directors, officers,
shareholders, employees, agents and affiliates.
(c) In the event that a person entitled to indemnification under
Sections 15 (a) or (b) is made a party to an action, suit or proceeding alleging
both matters for which indemnification can be made hereunder and matters for
which indemnification may not be made hereunder, such person shall be
indemnified only for that portion of the loss, liability, damage, cost or
expense incurred in such action, suit or proceeding which relates to the matters
for which indemnification can be made.
(d) None of the indemnifications contained in this Section 15 shall be
applicable with respect to default judgments, confessions of judgment or
settlements entered into by the part(ies) claiming indemnification without the
prior written consent of the party obligated to indemnify such party.
(e) The provisions of this Section 15 shall survive the termination or other
expiration of this Agreement.
15. Independent Contractors. The Sub-Adviser shall for all purposes
herein be deemed to be an independent contractor of Adviser. It is expressly
agreed to by the parties hereto that the relationship created by this Agreement
does not create a partnership or joint venture between the Sub-Adviser and the
Adviser. Except as specifically set forth herein with respect to the
Sub-Adviser's authority to place orders approved by the Adviser to
broker-dealers or banks for trading the accounts of the Fund, neither party
shall have any authority to bind the other nor shall either party represent to
third parties that it has such authority.
16. Liability. Neither the Sub-Adviser nor any of its agents,
employees, principals, directors, or officers or any person who controls the
Sub-Adviser shall be liable to Adviser or its officers, directors, partners,
employees, agents or any person who controls Adviser or any of its successors,
or assigns under this Agreement, except by reason of acts or omissions in
contravention of this Agreement due to willful misfeasance, gross negligence,
bad faith, reckless disregard of its duties and obligations under this
Agreement, or violation of applicable law. Adviser acknowledges that all
transactions made by the Sub-Adviser on behalf of the Fund, shall be for the
account and risk of the Fund. The Sub-Adviser shall have no responsibility for
the execution or clearance of the Fund's trades once orders have been
transmitted to the executing broker-dealer or bank for those trades.
Notwithstanding the foregoing sentences, the federal securities laws impose
liabilities under certain circumstances on persons who act in good faith and
therefore, nothing herein shall in any way constitute a waiver or limitation of
any rights which Adviser may have under the federal securities laws or state
securities laws.
17. Disclosure.
[] Adviser acknowledges receipt of Sub-Adviser's Disclosure Statement
(Part II of Adviser's Form ADV), as required by Rule 204-3 under the Investment
Advisers Act of 1940, not less than 48 hours prior to the date of execution of
this agreement shown below.
[] Adviser acknowledges receipt of Sub-Adviser's Disclosure Statement
(Part II of Adviser's Form ADV) less than 48 hours prior to, but not later than,
the date of execution of this agreement. Accordingly, Adviser shall have the
option to terminate this agreement without penalty within five business days
after that date of execution; provided, however, that any investment action
taken by Adviser with respect to the Fund prior to the effective date of such
termination shall be at Fund's risk.
18. Entire Agreement: Governing Law. This agreement constitutes the
entire agreement of the parties with respect to the rendering of advice by
Sub-adviser for the benefit of Adviser and the Fund and can be amended only by
written document signed by the parties. This agreement shall be governed by the
internal laws of the State of Michigan.
19. Amendment. This Agreement may be amended from time to time by
agreement of the parties hereto provided that such amendment shall be approved
both by the vote of a majority of Trustees of the Trust, including a majority of
Trustees who are not parties to this Agreement or interested person, as defined
in Section 2(a)(19) of the Act, of any such party at a meeting called for that
purpose, and, where required by Section 15(a)(2) of the Act, by the holders of a
majority of the outstanding voting securities (as defined in Section 2(a)(42) of
the Act) of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their duty authorized officers, and their corporate
seals affixed hereto this 16th day of June, 1998.
ATTEST: MICHIGAN NATIONAL BANK
/s/ Xxxxxxxx X. Xxxxxxxx /s/ Xxxxxx X. Xxxxxxxxx, Xx.
Secretary Director, Investment Services
Xxxxxxxx X. Xxxxxxxx Xxxxxx X. Xxxxxxxxx, Xx.
NATIONAL AUSTRALIA ASSET
MANAGEMENT LIMITED
/s/ Xxxx Xxxxxx
Secretary Managing Director
Xxxx Xxxxxx
Exhibit A
Independence One Mutual Funds
Independence One International Equity Fund
Sub-Advisory Agreement
Adviser will pay Sub-Adviser as full compensation for services rendered
hereunder an annual fee at the rate of 0.3% based on the average daily value of
the net assets of the Fund managed by the Sub-Adviser. The fee shall be
calculated as determined by the Fund on the last day of each month on which the
New York Stock Exchange is open and shall be payable on a monthly basis, in
arrears.
This Exhibit duly incorporates by reference the Sub-Advisory Agreement.
Advisor:
/s/ RJS
(initials)
Sub-Advisor:
/s/ PL
(initials)
Schedule 1
Independence One Mutual Funds
Independence One International Equity Fund
Part A - Investment Objectives
1. Investment Philosophy and Process
A) Asset Allocation (Country Selection)
NAM international equity portfolio are managed by its asset allocation
and international equity teams. The asset allocation team is
responsible for managing regional exposures in Europe, UK, Japan and
Asia.
The international team manages stock portfolios within countries and
undertakes country selection within Asia. Asian equities are managed
with a top down, growth based style because of the nature of Asian
markets.
We manage country allocation using NAM's Value Active approach. This is
a three step process involving the assessment of value, an analysis of
economic and market fundamentals and judgements about market sentiment.
Proprietary value models are used to determine fair value. The
assessment of value is a strictly quantitative process and ranks each
market with a through the range value score. A dividend discount
analysis calculates an implied rate of return and then a series of key
variables are used to derive an implied return based on historical
relationships. These two outputs are then compared to establish a value
reading for each market.
Thus the output from our value models is the primary input into our
decision about the attractiveness of each of the major markets. Our
model identifies markets that are undervalued; it is generally these
markets which deliver the best returns over time.
The second stage of our process, the active component, involves
analysis of fundamentals. Specialists monitor the key fundamental
factors in each market and provide this input to the asset allocation
team. Interest rates and corporate profits and their drivers are the
primary focus, and of course we go behind these numbers to look at
growth, inflation, etc. We estimate the size and pattern of changes in
our forecasts of these factors, and compare them to market consensus.
Political factors are also monitored for their impact on markets.
Finally, a number of technical and sentiment factors are monitored
including momentum and RSI indicators, flow of funds, put/call ratios
and the like.
Therefore the active elements of our process, (fundamental analysis and
sentiment) are used to fine turn the implementation of asset allocation
decisions which have been driven by our value analysis.
We emphasize that an important differentiating feature of NAM's
approach is that the country selection process is undertaken by a
dedicated team who are focused full time on this task. Stock selection
is a separate discipline undertaken by specialists in the international
equity team.
As noted earlier, growth is the key variable for investors in Asian
markets. Investors primarily seek returns from capital gains rather
than income, which matches the nature of the economies themselves and
the more volatile nature of their stock markets.
Information in Asian markets is still only selectively distributed.
Both coverage and quality of equity research is highly variable and
companies are often dominated by individual families or government
members. In such markets, relationships are crucial and effective
access to contacts and markets is a precondition for success.
Such market conditions mean that a top down approach is likely to be
more successful. We undertake a three level analysis which includes at
the first level the economy, the market and political factors; at the
second level, industry sectors; and at the third level, individual
stocks.
Once an overall allocation to Asia has been made, country selection
within the region is handled by the Asian specialists in the
international team.
B) Decision-Making/Implementation
The primary generator of our international exposures is the output from
our value model. This is updated at least weekly. The setting of
country exposures is a dynamic process which occurs on an ongoing
basis.
A monthly meeting is held to formally exchange information and provide
input to the asset allocation team. The meeting reviews the NAM value
model outputs, focuses on any specific changes made by the sector teams
to the fundamentals, and then pursues a list of current key issues for
discussion.
It must be stressed that the responsibility for setting portfolio
weightings rests with the asset allocation team, and this is a
continuous process. Generally we try to ensure that shifts in portfolio
weightings are implemented by futures so as not to disturb the
underlying physical stock portfolios. This approach enables
implementation of changes to geographical weightings swiftly and
cheaply, and has the added advantage of not altering the longer term
focus of the stock selectors in each country portfolio.
This is not practical for the majority of share markets in Asia,
however, and, as mentioned earlier, country selection is undertaken by
the international team.
Dealing in international stocks is undertaken by the country
specialist, and orders are approved by head of the international team
over and above designated levels. The management of country weightings
is largely undertaken via the use of futures and these are dealt
through the asset allocation team with final sign-off from the head of
asset allocation.
C) Country Ranges
The following table shows the ranges around the benchmark established
for the fund. Our value model provides recommended weightings within
these ranges.
Region/Country Benchmark
Japan +/- 15%
Europe +/- 10%
UK +/- 10%
Asia and Oceania +/- 5%
D) Stock Selection
i) Developed Countries
In terms of stock selection a value approach is used Value screens give
simplicity, consistency and discipline to our work. Each stock is
ranked relative to the others within its own market on each of six
variables:
PE ratio ]
Price to cash flow ratio ] Value Screens
Price to book value ]
Dividend yield ]
Cash flow to total liabilities ratio and ] Fundamental Screens
EPS growth
Each variable except book value and total liabilities is based on
prospective numbers. We use consensus forecasts. The six factors are
then combined into one composite relative value ranking (RVR). The
current RVR is compared to its historic range and an extreme RVR
triggers the active part of the process.
Having used the value screens to determined our interest in a given
stock, fundamental research focuses on the reasons why the stock may
now be trading cheaply or expensively. Our fundamental work thus
focuses on key issues rather than a mass of detail. We investigate
company strategy, industry competition, management changes and
financial data. If we can find no justification for the RVR we have
ascribed, the stock becomes a candidate for purchase or sale.
The third stage of the value active process uses sentiment indicators
to assist with the timing of buy/sell decisions. One of the side
effects of value screening is that it gives no indication of the timing
involved before the market recognizes the value signaled by the screen.
Sentiment indicators have been tailored for each market; they are a
mixture of moving average and momentum indicators. Importantly, the
value screening creates equally strong sell signals and our sell
disciplines are rigorous. Any stock which has an RVR which indicates it
should be sold can only then be held after a process of per review in
which the portfolio manager justifies the fundamentals. The head of
international makes the ultimate decision.
Sector weightings in each country portfolio vary from index as a result
of the stock ranking process, but are reviewed as part of overall
portfolio tracking error.
ii) Asia and Oceania
Asia
In Asian markets, because the key investment criterion is the growth
potential of markets and companies, a top down approach is employed
seeking relative value at each level - market, sector and stock.
(Excludes Australia and New Zealand which are treated the same as the
developed market approach.)
The first level leads to decisions about intra-regional market
weightings. We look at economic growth, inflation, interest rates,
corporate earnings, money supply and balance of payments. For each
market, we look at prospective PER, momentum, volumes and sentiment and
we also consider regional and country specific political developments.
That same process also helps identify favorable sectors within
countries. We look not just for sectors offering superior growth
prospects, but where the market has not yet discounted this growth.
Important factors in sector selection include government policy, the
stage of the economic cycle (or, even more broadly, the stage of
economic development), sensitivity to interest rates and other micro
factors.
The third level of assessment is of individual stocks themselves. We
look at earnings growth on a 2-3 year outlook and at the ability of the
company to exploit market positioning. In determining relative value,
we look at prospective PE relative to sector and market, price to net
asset value, price to cash flow and relative value ranges. We look
carefully at the financial position of the company, its balance sheet
and gearing and its return on equity. Finally, and most importantly, we
look at management quality, track record, connections and directors'
dealing activity.
Our investment universe includes Xxxxxxxxx, Xxx Xxxxxxx, Xxxx Xxxx, Xxxxxxxx,
Singapore.
Oceania - Value Active (3 Stage Process)
1. Identify value for every stock in our investment universe. Use a
combination of:
Price/Earnings Ratio
Price/Cashflow Ratio
Price/NTA
Dividend Yield
Net Present Value
Stocks are sorted in a model and ranked from cheapest to more
expensive.
2. The next step is to identify which of the 'good value' stocks are
bought. We will invest in companies where we anticipate the
'undervaluation' will be realized by the market within the next 12
months. To determine the timing we look at the fundamental outlook of
each of the cheap companies; and the market sentiment towards each of
the companies.
a) Fundamental: on a stock by stock basis we assess all factors which will
impact on the economy over the next 12 months.
These include:
o quality of management
o level of free cashflow
o economic influences
o strategic influences (competition, etc.)
We then come to an assessment as to whether the stock looks
fundamentally good.
b) Sentiment: we make an assessment on a stock by stock basis how the market
it treating the stock. Is it an uptrend, oversold, etc.? This helps with
the timing decision.
3. In terms of determining stock weighting we will establish significant
positions in stocks which:
i) are good value;
ii) have an improving fundamental outlook; and
iii) where market sentiment is likely to improve.
and, we will have no weightings in stocks which:
i) are poor value;
ii) have a deteriorating fundamental outlook; and
iii) the market sentiment is likely to deteriorate.
E) Currency
Currency management is also undertaken by the asset allocation team.
Our primary concern is to protect the portfolio from the negative
impact of major currency realignments. We use a series of models to
monitor value, fundamental influences and prevailing sentiment. Our
neutral position is an unhedged one and decisions to hedge either US
dollar or local currency exposure are made on a tactical basis, and
only after market allocation and stock selection have been made - i.e.
it is an independent decision.
F) Compliance and Corporate Governance
Although the responsible portfolio manager is accountable for complying
with the investment mandate, a dedicated compliance officer (we have
two full time staff in the compliance function within NAM, reporting to
the Head of Operations), has overall responsibility for ensuring
adherence to the mandate. All investment policies and procedures are
documented in the NAM Policies and Procedures Manual which sets out
clearly the standards that all investment staff are required to follow
when investing clients' monies. We have also prepared a Risk Management
Statement detailing our general approach to the management of
derivatives and other risk matters. Portfolios are audited for
compliance at least monthly, and also on a random basis.
Where NAM sees a need to take a particular corporate governance stance,
it is our policy to first advise our clients of the course of action we
propose. Such action is generally confined to major issues or
disagreements with board direction. It is not our policy or intention
to xxxxxx a confrontational approach with companies, and normally, if
concerned about behavior or direction of management, we would exit a
stock rather than engage in prolonged action. We support the corporate
governance guidelines promulgated by the Australian Investment
Managers' Association.
2) Performance Objective and Benchmark
The performance objective and benchmark for the Fund is to outperform
the Xxxxxx Xxxxxxx European Asia Far East Accumulation Index (net) in
US$ over a rolling three year period while maintaining tracking error
for the portfolio of below 5.00%.
Part B - Investment Guidelines
1. Investment Guidelines
The Manager shall manage the Portfolio in accordance with the following
specific guidelines and any further instructions given to the Manager
in writing from time to time.
a) Authorized Investments
The Independence One International Equity Fund will invest in the
following investments:
1. Ordinary shares, partly paid shares, rights or entitlements,
preference shares, cumulative convertible or redeemable
preference shares, convertible notes, warrants, and options
issued by companies quoted or to be quoted on any recognized
Stock Exchange in any country listed below (inclusive of the
US where the security relates to non US investments) or to be
listed within three months of the date of purchase.
Region and Country Listing:
Region Country Japan Japan Europe Federal Republic of Germany, Austria, Belgium,
Denmark, France, Ireland, Italy, Netherlands, Norway, Spain, Switzerland,
Sweden, Luxembourg, Portugal, Finland UK United Kingdom S.E. Asia and Oceania
Australia, Hong Kong, New Zealand, Malaysia, Singapore and any other country
agreed in writing between the Advisor and Sub-advisor
2. Webs (World Equity Benchmark Shares) and OPALS (Optimised
Portfolios As Listed Securities) listed on any recognized
Stock Exchange in any country listed in (1) above including
the US.
3. Options, futures and indexed futures listed on any recognized Stock
Exchange in any country listed in (1) above. 4. Units, options on units
and partly paid units listed on any recognized Stock Exchange in any
country listed in (1)
above.
5. Interest in a mutual fund or any investment vehicle that
comprises substantially of listed securities in those
countries on in any individual country listed in (1) above.
6. Cash, Treasury Bills, Bank Deposits, Promissory Notes and
other Commercial Paper with a maturity of less than three
years.
7. Currencies both spot and forward for those countries listed in (1)
above including $US.
b) Operating Procedures
1. Cash Flow
The client will be responsible for the management of the bank account
of the fund with the custodian and will need to advise the manager on a
daily basis of the total inflow and outflow as well as a projection of
cash flow requirements based on notified or expected redemptions from
the fund. The cash flow projection will need to be updated on a daily
basis out to the maximum redemption period.
The custodian will be required to advise the manager on a daily basis
of the balance in the bank account and a detailed transaction listing
for the fund as well as the total creditor and debtor position.
Initially this communication will be by facsimile, however electronic
transfer of information should be further explored.
After receipt of the above information, the manager will determine the
investment approach for surplus funds.
2. Investment
The manager in conjunction with the client will establish accounts with
brokers for the purchase and disposal of securities. The manager will
provide the custodian with an approved brokers confirmation of a trade
for settlement. Copies of the brokers confirmation will also be sent to
the client. The manager will establish with the custodian a secure
procedure for the settlement of all trades.
The manager will treat the brokers confirmation as a pending trade
until the custodian confirms the settlement amount in $US when the
trade will be posted to the client's account. The portfolio records
maintained by the manager for the client will be in $US.
3. Portfolio Balancing
The portfolio records maintained by the manager shall not be closed at
the end of a month until the final transaction listing from the
custodian has been checked against the mangers records.
When completed the end of month portfolio reports including performance
statistics will be completed.
Schedule 2
Independence One Mutual Funds
Independence One International Equity Fund
Reporting
1. Investment Report
NAM will provide the following reports:
Monthly
o A detailed portfolio listing and valuation report in $US.
Quarterly
o A detailed report on the management of the portfolio covering all
activity, performance and background against which investment
decisions have been made.
o A forward looking market commentary highlighting any major portfolio changes
that may be considered next quarter.
Annually
o An annual report covering all major activities and performance for the fund
over the preceding year.
