INVESTMENT ADVISORY AGREEMENT
Exhibit
(d)(1)
This
Investment Advisory Agreement (this “Agreement”) is made and entered into on
__________, 2010, to be effective upon the commencement of operations of the
first of the Funds listed on Schedule A attached hereto, by and between
FocusShares Trust, a Delaware statutory
trust (the “Trust”), and FocusShares Advisors LLC, a Delaware limited liability
company (the “Advisor”).
WHEREAS,
the Trust is an open-end management investment company, registered under the
Investment Company Act of 1940, as amended (the “1940 Act”);
WHEREAS,
the Trust is authorized to issue shares of beneficial interest in separate
series with each such series representing interests in a separate portfolio of
securities and other assets;
WHEREAS,
the Advisor is registered as an investment adviser under the Investment Advisers
Act of 1940, as amended (the “Advisers Act”), and engages in the business of
asset management;
WHEREAS,
the Trust desires to retain the Advisor to render certain investment management
services to the portfolios of the Trust, each a series of the Trust (each a
“Fund” and, collectively, the “Funds”), and the Advisor is willing to render
such services; and
WHEREAS,
capitalized terms not otherwise defined in this Agreement have the meanings
assigned to them in a Fund’s most recent prospectus.
NOW,
THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Obligations of Investment
Advisor.
(a) Services. The
Advisor shall provide a continuous program of investment management for the
Funds, subject to the general supervision of the Trust’s Board of Trustees and
the provisions of this Agreement. Specifically, and without limiting
the generality of the foregoing, the Advisor agrees to perform the following
services (the “Services”) for each Fund:
(1) manage
the investment and reinvestment of the assets of the Fund for the period and on
the terms set forth in this Agreement;
(2) continuously
review, supervise, and administer the investment program of the
Fund;
(3) determine,
in its discretion, the securities to be purchased, retained or sold (and
implement those decisions) with respect to the Fund;
(4) with
the assistance of the Fund’s distributor, determine the number of shares of the
Fund that will be created or redeemed each Business Day based on the purchase
orders submitted by Authorized Participants;
(5) provide,
in a timely manner, such information as may be reasonably requested by the Trust
or its designated agents in connection with, among other things, information
about the Fund sufficient for a pricing service or other entity to calculate the
Indicative Intra-Day Value of the shares of the Fund every fifteen seconds each
Business Day;
(6) provide
the Trust and the Fund with records concerning the Advisor’s activities under
this Agreement which the Trust and the Fund are required to
maintain;
(7) render
regular reports to the Trust’s trustees and officers concerning the Advisor’s
discharge of the foregoing responsibilities; and
(8) arrange
for other necessary services, including custodial, transfer agency and
administration.
(b) Control of the
Trust. The Advisor shall discharge the responsibilities
described in subsection (a) subject to the control of the trustees and officers
of the Trust and in compliance with (i) such policies as the trustees may from
time to time establish; (ii) the Fund’s objectives, policies, and limitations as
set forth in its prospectus and statement of additional information, as the same
may be amended from time to time; and (iii) with all applicable laws and
regulations.
(c) Sub-Advisor and
Agents. All Services to be furnished by the Advisor under this
Agreement may be furnished through the medium of any managers, officers or
employees of the Advisor or through such other parties (including, without
limitation, a sub-advisor) as the Advisor may determine from time to
time.
(d) Expenses and
Personnel. The Advisor agrees, at its own expense or at the
expense of one or more of its affiliates, to render the Services and to provide
the office space, furnishings, equipment and personnel as may be reasonably
required in the judgment of the trustees and officers of the Trust to perform
the Services on the terms and for the compensation provided
herein. The Advisor shall authorize and permit any of its officers,
managers and employees, who may be elected as trustees or officers of the Trust,
to serve in the capacities in which they are elected. Except to the
extent expressly assumed by the Advisor herein and except to the extent required
by law to be paid by the Advisor, the Trust shall pay all costs and expenses in
connection with its operation.
(e) Books and
Records. The Advisor hereby undertakes and agrees to maintain
all records not maintained by a service provider or sub-adviser pursuant to
their agreements with the Trust or the Advisor, in the form and for the period
required by Rule 31a-2 under the 1940 Act. All books and records
prepared and maintained by the Advisor for the Trust and each Fund under this
Agreement shall be the property of the Trust and the Fund and, upon request
therefor, the Advisor shall surrender to the Trust and the Fund such of the
books and records so requested. The Advisor further agrees that it
will not disclose or use any records or information obtained pursuant to this
Agreement in any manner whatsoever except as authorized in this Agreement and
that it will keep confidential any information obtained pursuant to this
Agreement and disclose such information only if the Trust has authorized such
disclosure, or if such disclosure is required by federal or state regulatory
authorities.
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(f) Additional Services Provided
at the Expense of the Trust. The Advisor agrees, at the
expense of the Trust or the Advisor, as determined under Section 3(b) hereof,
(i) to prepare all required tax returns of the Trust and each Fund, (ii) to
prepare and submit reports to existing shareholders, (iii) to update
periodically the prospectuses and statements of additional information of the
Trust and (iv) to prepare reports to be filed with the Securities and Exchange
Commission (“SEC”) and other regulatory authorities.
2. Fund
Transactions.
(a) General. The
Advisor is authorized to select the brokers or dealers that will execute the
purchases and sales of portfolio securities for each Fund. With
respect to brokerage selection, the Advisor shall seek to obtain the best
overall execution for fund transactions, which is a combination of price,
quality of execution and other factors. As permitted by Section 28(e)
of the Securities Exchange Act of 1934, as amended (“Section 28(e)”), the
Advisor may pay to a broker which provides brokerage and research services (as
such services are defined in Section 28(e)) to the Fund an amount of disclosed
commission in excess of the commission which another broker would have charged
for effecting that transaction. Such practice is subject to a good
faith determination that such commission is reasonable in light of the services
provided and to such policies as the Trust’s trustees may adopt from time to
time. Such services of brokers are used by the Advisor in connection
with all of its investment activities, and some of such services obtained in
connection with the execution of transactions for a Fund may be used in managing
other investment accounts.
(b) Mixed-Use
Services. On occasion, a broker-dealer might furnish the
Advisor with a service which has a mixed use (i.e., the service is used
both for investment and brokerage activities and for other
activities). Where this occurs, the Advisor will reasonably allocate
the cost of the service, so that the portion or specific component which assists
in investment and brokerage activities is obtained using portfolio commissions
from a Fund or other managed accounts, and the portion or specific component
which provides other assistance (for example, administrative or non-research
assistance) is paid for by the Advisor from its own funds.
(c) Exclusivity. Where
the Advisor deems the purchase or sale of a security to be in the best interest
of a Fund as well as its other customers (including any other fund or other
investment company or advisory account for which the Advisor acts as investment
adviser), the Advisor, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be sold or purchased for a Fund
with those to be sold or purchased for such other customers in order to obtain
the best net price and most favorable execution under the
circumstances. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by the Advisor, as applicable, in the manner it considers to be equitable
and consistent with its fiduciary obligations to such Fund and such other
customers. In some instances, this procedure may adversely affect the
price and size of the position obtainable for the Fund.
(d) Reporting. The
Advisor will promptly communicate to the officers and the trustees of the Trust
such information relating to portfolio transactions as they may reasonably
request.
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(e) Delegation. The
Advisor may delegate or share responsibility for Fund transactions and the terms
of this Section 2 with a sub-advisor, pursuant to the terms of Section
1(c).
3.
Compensation of the Advisor;
Expense Allocation.
(a) For
the services rendered, the facilities furnished and expenses assumed by the
Advisor, each Fund shall pay to the Advisor at the end of each calendar month a
fee for the Fund calculated as a percentage of the average daily net assets of
the Fund at the annual rates set forth in Schedule A of this
Agreement. The Advisor’s fee is accrued daily at 1/365th of the
applicable annual rate set forth in Schedule A. Schedule A shall be
amended from time to time to reflect the addition and/or termination of any Fund
as a Fund hereunder and to reflect any change in the advisory fees payable with
respect to any Fund duly approved in accordance with Section 8
hereof. For the purpose of the fee accrual, the daily net assets of
each Fund are determined in the manner and at the times set forth in the Fund’s
current prospectus and, on days on which the net assets are not so determined,
the net asset value computation to be used shall be as determined on the
immediately preceding day on which the net assets were determined. In
the event of termination of this Agreement, all compensation due through the
date of termination will be calculated on a pro-rated basis through the date of
termination and paid within fifteen business days of the date of
termination. The Advisor may waive all or a portion of its fees
provided for hereunder and such waiver will be treated as a reduction in the
purchase price of its services. The Advisor shall be contractually
bound under this Agreement by the terms of any publicly-announced waiver of its
fee, or any limitation of a Fund’s expenses, as if such waiver or limitation
were fully set forth in this Agreement. The waiver of any of the
Advisor’s fee shall not obligate the Advisor to waive any of its fee on a
subsequent occasion.
(b) The
Advisor agrees to pay all expenses of the Trust, except for: (i) brokerage
expenses and other expenses (such as stamp taxes) connected with the execution
of portfolio transactions or in connection with creation and redemption
transactions; (ii) interest and tax expenses; (iii) dividend and distribution
expenses; (iv) legal fees or expenses in connection with any arbitration,
litigation or pending or threatened arbitration or litigation, including any
settlements in connection therewith; (v) compensation and expenses of the
Trustees of the Trust who are not officers, directors/trustees, partners or
employees of the Advisor or its affiliates (the "Independent Trustees"); (vi)
compensation and expenses of counsel to the Independent Trustees; (vii)
distribution fees and expenses paid by the Trust under any distribution plan
adopted pursuant to Rule 12b-1 under the 1940 Act; (viii) extraordinary
expenses, as determined under generally accepted accounting principles; and (ix)
the advisory fee payable to the Advisor hereunder. The payment or
assumption by the Advisor of any expense of the Trust that the Advisor is not
required by this Agreement to pay or assume shall not obligate the Advisor to
pay or assume the same or any similar expense of the Trust on any subsequent
occasion.
4.
Status of Investment
Advisor. The services of the Advisor to the Trust and each
Fund are not to be deemed exclusive, and the Advisor shall be free to render
similar services to others so long as its services to the Trust and the Funds
are not impaired thereby. The Advisor shall be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust or the Funds in
any way or otherwise be deemed an agent of the Trust or the
Funds. Nothing in this Agreement shall limit or restrict the right of
any manager, officer or employee of the Advisor, who may also be a trustee,
officer or employee of the Trust, to engage in any other business or to devote
his or her time and attention in part to the management or other aspects of any
other business, whether of a similar nature or a dissimilar nature.
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5.
Permissible
Interests. Trustees, agents, and shareholders of the Trust are
or may be interested in the Advisor (or any successor thereof) as managers,
officers, members or otherwise; and managers, officers, agents, and members of
the Advisor are or may be interested in the Trust as trustees, shareholders or
otherwise; and the Advisor (or any successor) is or may be interested in the
Trust as a shareholder or otherwise.
6.
Limits of Liability;
Indemnification. The Advisor assumes no responsibility under
this Agreement other than to render the services called for
hereunder. The Advisor shall not be liable for any error of judgment
or for any loss suffered by the Trust or a Fund in connection with the matters
to which this Agreement relates, except a loss resulting from a breach of
fiduciary duty with respect to receipt of compensation for services (in which
case any award of damages shall be limited to the period and the amount set
forth in Section 36(b)(3) of the 0000 Xxx) or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of, or
from reckless disregard by it of its obligations and duties under, this
Agreement. It is agreed that the Advisor shall have no responsibility
or liability for the accuracy or completeness of the Trust’s registration
statement under the 1940 Act or the Securities Act of 1933, as amended (the
“1933 Act”), except for information supplied by the Advisor for inclusion
therein. The Trust agrees to indemnify the Advisor to the full extent
permitted by the Trust’s Declaration of Trust.
7.
Term. This
Agreement shall become effective as stated in the Recitals
hereto. Unless terminated as provided in this Agreement, this
Agreement shall remain in full force and effect for two years from the date of
this Agreement. Subsequent to such initial period of effectiveness,
this Agreement shall continue in full force and effect for successive periods of
one year thereafter provided that such continuance with respect to the Funds is
approved at least annually (a) by either the trustees or by vote of a majority
of the outstanding voting securities (as defined in the 0000 Xxx) of the Funds,
and (b) in either event, by the vote of a majority of the trustees who are not
parties to this Agreement or “interested persons” (as defined in the 0000 Xxx)
of any such party, cast in person at a meeting called for the purpose of voting
on such proposal; provided, however, that:
(a) the
Trust may, at any time and without the payment of any penalty, terminate this
Agreement upon 60 days written notice of a decision to terminate this Agreement
by (i) the Trust’s trustees; or (ii) the vote of a majority of the outstanding
voting securities of the Funds;
(b) the
Agreement shall immediately terminate in the event of its assignment (within the
meaning of the 1940 Act and the rules promulgated thereunder);
(c) the
Advisor may, at any time and without the payment of any penalty, terminate this
Agreement upon 60 days’ written notice to the Trust and the Funds;
and
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(d) the
terms of paragraph 6 of this Agreement shall survive the termination of this
Agreement.
8.
Amendments. No
provision of this Agreement may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought, and no
amendment of this Agreement shall be effective with respect to a Fund until
approved by (a) to the extent required by applicable law, the vote of the
holders of a majority of the Fund’s outstanding voting securities and (b) a
majority of those trustees of the Trust 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. Additional Funds may be added to
Schedule A by written agreement of the Trust and the Advisor.
9.
Applicable
Law. This Agreement shall be construed in accordance with, and
governed by, the laws of the State of New York without regard to the principles
of the conflict of laws or the choice of laws.
10. Representations and
Warranties.
(a) Representations and
Warranties of the Advisor. The Advisor hereby represents and
warrants to the Trust as follows:
(i) the
Advisor is a limited liability company duly organized, validly existing, and in
good standing under the laws of the State of Delaware and is fully authorized to
enter into this Agreement and carry out its duties and obligations
hereunder;
(ii) the
Advisor is registered as an investment adviser with the SEC under the Advisers
Act, shall maintain such registration in effect at all times during the term of
this Agreement, and shall notify the Trust immediately if the Advisor ceases to
be so registered; and
(iii) the
Advisor has adopted a written code of ethics complying with the requirements of
Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, and will
provide the Trust with a copy of that code, together with evidence of its
adoption. Within 20 days of the end of each calendar quarter during
which this Agreement remains in effect, the chief compliance officer of the
Advisor shall certify to the Trust that the Advisor has complied with the
requirements of Rule 17j-1 and Rule 204A-1 (each as amended from time to time)
during the previous quarter and that there have been no violations of the
Advisor’s code of ethics or, if such a violation has occurred, that appropriate
action has been taken in response to such violation. Upon written
request of the Trust, the Advisor shall permit representatives of the Trust to
examine the reports (or summaries of the reports) required to be made to the
Advisor by Rule 17j-1(c)(1) and other records evidencing enforcement of the code
of ethics.
(b) Representations and
Warranties of the Trust. The Trust hereby represents and
warrants to the Advisor as follows: (i) the Trust has been duly organized as a
trust under the laws of the State of Delaware and is authorized to enter into
this Agreement and carry out its terms; (ii) shares of the Fund are (or will be)
registered for offer and sale to the public under the 1933 Act; and (iii) such
registrations will be kept in effect during the term of this
Agreement.
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11. Liability of Trust and
Funds. It is expressly agreed that the obligations of the
Trust hereunder shall not be binding upon any of the trustees, shareholders,
nominees, officers, agents or employees of the Trust personally, but shall bind
only the trust property of the Trust as provided in the Declaration of
Trust. This Agreement shall not be deemed to have been made by any of
them individually or to impose any liability on them personally. With
respect to any obligation of the Trust or a Fund arising under this Agreement,
the Advisor shall look for payment or satisfaction of such obligation solely to
the assets and property of the Fund to which such obligation relates, and under
no circumstances shall the Advisor have the right to set off claims relating to
such Fund by applying property of any other series of the Trust. The
business and contractual relationships created by this Agreement, consideration
for entering into this Agreement, and the consequences of such relationship and
consideration relate solely to the Trust and the Funds.
12. Use of
Names. The Trust acknowledges that all rights to the names
“Focus” and “FocusShares” and any derivatives
thereof (“Names”), as well as any logos that are now or shall hereafter be
associated with Names (“Logos”), belong to the Advisor, and that the Trust is
being granted a limited license to use such Names and Logos in its name, the
name of its series and the name of its classes of shares. In the
event that this Agreement is terminated and the Advisor no longer acts as
investment adviser to the Trust, the Advisor reserves the right to withdraw from
the Trust and the Funds the uses of Names and Logos or any name or logo that
would imply a continuing relationship between the Trust or the Funds and the
Advisor or any of its affiliates.
13. Severability. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby and, to this extent, the provisions of this Agreement shall
be deemed to be severable.
14. Notice. Notices
of any kind to be given to the Trust hereunder by the Advisor shall be in
writing and shall be duly given if mailed or delivered to the Trust at 000 Xxxxxx
Xxxxxx, Xxxxx X-00, Xxxxxxxx, XX 00000 Attention: President, or to such other
address or to such individual as shall be so specified by the Trust to the
Advisor. Notices of any kind to be given to the Advisor hereunder by
the Trust shall be in writing and shall be duly given if mailed or delivered to
the Advisor at the Trust at 000 Xxxxxx Xxxxxx, Xxxxx X-00, Xxxxxxxx, XX 00000
Attention: President, or at such other address or to such individual as shall be
so specified by the Advisor to the Trust. Notices shall be deemed to
have been given on the date delivered personally or by courier service, or three
days after sent by registered or certified mail, postage prepaid, return receipt
requested.
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IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as
of the day and the year first written above.
By: _____________________________
Name: Title: |
FOCUSSHARES
ADVISORS LLC
By: _____________________________
Name: Title: |
Attest
____________________________________
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Schedule A
to
INVESTMENT ADVISORY AGREEMENT
Fund
|
Fee Rate
|
Focus
Morningstar US Market Index ETF
|
[•]%
|
Focus
Morningstar Large Cap Index ETF
|
[•]%
|
Focus
Morningstar Mid Cap Index ETF
|
[•]%
|
Focus
Morningstar Small Cap Index ETF
|
[•]%
|
Focus
Morningstar Basic Materials Index ETF
|
[•]%
|
Focus
Morningstar Communications Services Index ETF
|
[•]%
|
Focus
Morningstar Consumer Cyclical Index ETF
|
[•]%
|
Focus
Morningstar Consumer Defensive Index ETF
|
[•]%
|
Focus
Morningstar Energy Index ETF
|
[•]%
|
Focus
Morningstar Financial Services Index ETF
|
[•]%
|
Focus
Morningstar Health Care Index ETF
|
[•]%
|
Focus
Morningstar Industrials Index ETF
|
[•]%
|
Focus
Morningstar Real Estate Index ETF
|
[•]%
|
Focus
Morningstar Technology Index ETF
|
[•]%
|
Focus
Morningstar Utilities Index ETF
|
[•]%
|