INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of February 18, 2011, by and among Highland
Funds Asset Management, L.P., a Delaware limited partnership (the
"Adviser"), Highland Funds II, a Massachusetts business trust (fka
GE Funds "Trust"), on behalf of its series Highland Total Return
Fund (fka GE Total Return Fund), solely with respect to Section
10(b) of this Agreement, and GE Asset Management Incorporated, a
Delaware corporation (the "Sub-Adviser").
WHEREAS, the Trust is engaged in business as an open-end
management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Adviser and Sub-Adviser are both engaged
principally in the business of rendering investment management
services and are registered as investment advisers under the
Investment Advisers Act of 1940, as amended (the "Advisers Act");
WHEREAS, the Trust, on behalf of its series, Highland Total
Return Fund (fka GE Total Return Fund the "Fund"), and the Adviser
have entered into an investment advisory agreement (the "Advisory
Agreement") pursuant to which the Adviser acts as manager and
investment adviser to the Fund;
WHEREAS, the Advisory Agreement provides that the Adviser
shall have the authority to engage one or more sub-advisers in
connection with the portfolio management of the Fund; and
WHEREAS, the Adviser and the Board of Trustees of the Trust
desire to engage the Sub-Adviser to render portfolio management
services in the manner and on the terms set forth in this
Agreement;
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between
the parties hereto as follows:
SECTION 1. Appointment of Sub-Adviser.
The Adviser hereby appoints the Sub-Adviser to act as
investment sub-adviser to the Fund for the period and on the terms
herein set forth, and the Trust on behalf of the Fund and the
shareholders of the Fund have approved such appointment. The Sub-
Adviser accepts such appointment and agrees to render the services
herein set forth, for the compensation herein provided. The Sub-
Adviser acknowledges that such appointment as investment sub-
adviser to the Fund may be limited to those Fund assets allocated
to the Sub-Adviser by the Adviser, which may be changed from time
to time at the sole discretion of the Adviser. Where the context
so requires, references to "the Fund" in this Agreement shall
refer to those Fund assets allocated to the Sub-Adviser by the
Adviser. The Sub-Adviser shall for purposes herein be deemed an
independent contractor and shall, except as expressly provided or
authorized, have no authority to act for or represent the Trust,
the Funds or the Adviser in any way, or otherwise be deemed an
agent of the Trust, the Funds or the Adviser. For the avoidance of
doubt, the Sub-Adviser shall not be permitted to delegate any of
its obligations under this Agreement.
SECTION 2. Duties of Sub-Adviser.
The Sub-Adviser, at its own expense, shall furnish the
following services and facilities to the Fund:
(a) Investment Program. The Sub-Adviser shall (i) furnish
continuously an investment program for the Fund,
[including but not limited to allocating assets to other
third-party sub-advisers based upon the Sub-Adviser's
asset allocation model,]1 (ii) determine (subject to the
overall supervision of the Adviser and the Trust's Board
of Trustees) the investments to be purchased, held, sold
or exchanged by the Fund and the portion, if any, of the
assets of the Fund to be held uninvested, (iii) make
changes in the investments of the Fund, (iv) review and
certify in writing, at such times as shall be reasonably
requested by the Adviser, that the information stated in
those sections specifically identified to the Sub-
Adviser by the Adviser of the Trust's registration
statement, as currently in effect and as amended or
supplemented from time to time (referred to collectively
as the "Registration Statement") and as filed with the
Securities and Exchange Commission ("SEC"), any proxy
statement, any annual or semi-annual report to investors
in the Fund, any other reports filed with the SEC and
any marketing material of the Fund, to the extent such
sections relate to the Sub-Adviser and its management of
the Fund or the applicable portion of the Fund's assets,
is true, correct and complete to the best of its
knowledge, (v) at such times as shall be reasonably
requested by the Adviser, cooperate with the Adviser to
ensure the accuracy of other information in such
documents and materials relating to the Fund, including
the Fund's risk disclosures and financial information
and the Sub-Adviser's investment performance in its
management of the Fund, and (vi) vote, exercise consents
and exercise all other rights pertaining to such
investments. The Sub-Adviser shall be subject always to
the provisions of the organizational documents of the
Trust, the Registration Statement of the Trust with
respect to the Fund and its shares of beneficial
interest, including the Fund's prospectus(es) and
statement of additional information, and the 1940 Act,
in each case as from time to time amended and in effect.
The Sub-Adviser shall carry out its responsibilities
under this Agreement in compliance with: (vii) the
Fund's investment objective, policies and restrictions
as set forth in the Registration Statement of the Trust
and the Fund's prospectus and statement of additional
information; (viii) the organizational documents of the
Trust; (ix) all investment guidelines, policies,
procedures or directives of the Trust or the Adviser as
provided to the Sub-Adviser ("Investment Guidelines");
(x) the 1940 Act and the rules promulgated thereunder;
(xi) the Investment Advisers Act of 1940, as amended
("Advisers Act"), and the rules promulgated thereunder;
and (xii) other applicable federal and state laws and
related regulations. To the extent that the Investment
Guidelines applicable to the portion of the Fund's
assets allocated to the Sub-Adviser are inconsistent
with the investment restrictions applicable to the
Fund's total assets as set forth in the Registration
Statement, the Sub-Adviser shall comply with the
1 Bracketed text to be included for GE Total Return Fund only.
policies, procedures and directives as set forth in the
Investment Guidelines. The Adviser shall promptly notify
the Sub-Adviser in writing of changes to (vii), (viii)
or (ix) above and shall consult with the Sub-Adviser
before making any changes relating solely to the Fund's
investment objective, policies and restrictions as set
forth in the Registration Statement, as well as to the
policies, procedures and directives set forth in the
Investment Guidelines.
Portfolio Transactions. The Sub-Adviser shall place all
orders for the purchase and sale of portfolio securities
for the account of the Fund with brokers or dealers
selected by the Sub-Adviser, although the Fund will pay
the actual brokerage commissions on portfolio
transactions in accordance with Section 3(d) of the
Advisory Agreement. For that limited purpose, the Sub-
Adviser is authorized as the agent of the Fund to give
instructions to the custodian of the Fund as to
deliveries of securities or other investments and
payments of cash for the account of the Fund.
In placing portfolio transactions for the Fund, it is
recognized that the Sub-Adviser will use its best
efforts to secure the most favorable price and efficient
execution. Consistent with this policy, the Sub-Adviser
may consider the financial responsibility, research and
investment information and other services provided by
brokers or dealers who may effect or be a party to any
such transaction or other transactions to which other
clients of the Sub-Adviser may be a party. It is
understood that neither the Fund nor the Sub-Adviser has
adopted a formula for allocation of the Fund's
investment transaction business. It is also understood
that it is desirable for the Fund that the Sub-Adviser
have access to supplemental investment and market
research and security and economic analysis provided by
brokers who may execute brokerage transactions at a
higher cost to the Fund than would otherwise result when
allocating brokerage transactions to other brokers on
the basis of seeking the most favorable price and
efficient execution. Therefore, subject to Section 28(e)
of the Securities Exchange Act of 1934 and any
restrictions and guidelines established by the Trust's
Board of Trustees, the Sub-Adviser is authorized to
place orders for the purchase and sale of securities for
the Fund with such brokers. It is understood that the
services provided by such brokers may be useful or
beneficial to the Sub-Adviser in connection with its
services to other clients.
On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the
Fund as well as other clients, the Sub-Adviser, to the
extent permitted by applicable laws and regulations,
may, but shall be under no obligation to, aggregate the
securities to be so sold or purchased in order to obtain
the most favorable price or lower brokerage commissions
and efficient execution. 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 Sub-Adviser in the manner it considers to be the
most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.
(c) Fair Valuation. In accordance with procedures adopted by
the Trust's Board of Trustees, as amended from time to
time, the Sub-Adviser is responsible for assisting the
Adviser in determining the fair valuation of any
illiquid portfolio securities held by the Fund and will
assist the Trust's accounting services agent or the
Adviser to obtain independent sources of market value
for all other portfolio securities.
Further, the Sub-Adviser shall be responsible to ensure
that the Fund and/or the Adviser is promptly notified of
any and all instances in which the Sub-Adviser knows or
should have reason to know that the available price or
value of a portfolio security does not represent the
fair value of the instrument, or that there is no price
or value available from any source with respect to a
particular instrument and that such instrument should
accordingly be subject to a fair valuation determination
in accordance with procedures adopted by the Board of
Trustees, as amended from time to time.
SECTION 3. Delivery of Documents.
The Adviser has furnished the Sub-Adviser with true and
complete copies properly certified or authenticated of each
of the following documents:
Organizational documents of the
Trust; Registration Statement of each
Fund: The Investment Guidelines;
The Advisory Agreement;
A list of affiliated brokers and underwriters of a Fund for
compliance with applicable provisions of the 1940 Act; and
A list of affiliated issuers of the Fund and/or the Adviser
restricted from purchase by a Fund.
The Adviser will provide to the Sub-Adviser copies properly
certified or authenticated of amendments or supplements to any
of these materials as soon as practical after such materials
become available.
SECTION 4. Allocation of Expenses.
During the term of this Agreement, the Sub-Adviser will bear
all expenses incurred by it in connection with its investment sub-
advisory services under this Agreement. The Sub-Adviser does not
assume nor shall it pay any expenses for Fund operations and
activities. For the avoidance of doubt, unless the prospectus(es)
or statement of additional information of the Fund provides
otherwise, the expenses to be borne by the Fund shall include,
without limitation, those items listed in Section 3 of the
Advisory Agreement.
SECTION 5. Sub-Advisory Fee.
(a) In return for its advisory services, the Adviser will
pay the Sub-Adviser a monthly
fee, computed and accrued daily, based on an annual rate
of 0.250% of the "Average Daily Managed Assets" of such
portion of the Fund's assets allocated to the Sub-
Adviser. "Average Daily Managed Assets" shall mean the
average daily value of the assets of the Fund allocated
to the Sub-Adviser, less accrued liabilities of the Fund
related or allocated to such portion of the Fund's
assets allocated to the Sub-Adviser (other than the
aggregate amount of any outstanding borrowings
constituting financial leverage). [For the avoidance of
doubt, assets allocated by the Sub-Adviser to other sub-
advisers pursuant to Section 2(a) of this Agreement will
not be considered to have been allocated to Sub-Adviser
for purposes of determining Average Daily Managed
Assets, and the Sub-Adviser will not receive any fees
with respect to such assets.]2 If this Agreement becomes
effective subsequent to the first day of a month or
shall terminate before the last day of a month,
compensation for such month shall be computed in a
manner consistent with the calculation of the fees
payable on a monthly basis. The accrued fees will be
payable monthly no later than the fifteenth (15)
business day following the end of each month during
which this Agreement is in effect.
(b) The Adviser agrees to direct the Fund's administrator
to pay the Sub-Adviser the compensation payable pursuant
to Section 5(a) out of the assets of the Fund;
provided, however, that in such case the compensation
payable to the Sub-Adviser by the Adviser hereunder will
be reduced by the amount of any compensation paid
directly by the Fund to the Sub-Adviser.
To the extent the Sub-Adviser allocates any assets to
third-party sub-advisers as contemplated by clause (i)
of Section 2(a), the fees payable to such third-party
sub-advisers shall not be payable by the Sub-Adviser out
of the fees paid by the Adviser to the Sub-Adviser
pursuant to this Section 5 but shall be paid pursuant to
the terms and conditions of the sub-advisory agreement
entered between such third-party sub-adviser and the
Adviser.]3
SECTION 6. Compliance with Applicable
Regulations. In performing its duties hereunder,
the Sub-Adviser:
(a) Shall establish, to the extent required by applicable
law, compliance policies and procedures relating to the
provision of sub-advisory services under this Agreement
(the "Compliance Policies and Procedures") (copies of
which shall be provided to the Adviser and shall be
subject to review and approval by the Adviser and the
Board of Trustees) and, in addition, shall comply with
all applicable provisions of the "Federal Securities
Laws" (as such term is defined in
2 Bracketed text to be included for GE Total Return Fund only.
3 Bracketed text to be included for GE Total Return Fund only.
Rule 3 8a- 1 under the 1940 Act); the asset
diversification requirements set forth under Section 851
(b)(3) of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"); the gross income
qualification requirements as set forth under Section
851(b)(2) of the Code; the provisions of the
Registration Statement of the Trust with respect to the
Fund; the provisions of the organizational documents of
the Trust, as the same may be amended from time to time;
and Rule 206(4)-7 under the Advisers Act; and any other
applicable provision of state, federal or foreign law to
the extent violations of such law may adversely affect
the Fund or the Adviser. The Sub-Adviser shall manage
the Fund in a manner (i) that will make available
sufficient cash for the Fund to pay dividends that
satisfy the distribution requirements set forth in
Section 852(a) of the Code and eliminate tax at the fund
level under Section 852(a) and Section 4982(a) of the
Code and (ii) that will permit the Fund to pay exempt-
interest dividends within the meaning of Section
852(b)(5) of the Code.[4] The Sub-Adviser shall provide
the Fund's Chief Compliance Officer ("CCO") with
reasonable access to information regarding the Sub-
Adviser's compliance program, which access shall include
on-site visits, during normal business hours, by the CCO
with the Sub-Adviser as may be reasonably requested from
time to time. The Sub-Adviser shall provide reasonable
assistance to the Fund and the CCO in complying with
Rule 38a-1 under the 1940 Act and, upon the request of
the Fund and/or the CCO, including in connection with
the CCO's annual written report to the Board required
pursuant to Rule 3 8a- 1, the Sub-Adviser agrees to
provide reports and certifications from the Sub-
Adviser's Chief Compliance Officer regarding: (i) the
adequacy and operation of the Compliance Policies and
Procedures and any material changes made or recommended
to be made to those policies and procedures; and (ii)
the effectiveness of their implementation.
(b) Shall notify the Fund and Adviser regarding: (i) any
material changes made to the Compliance Policies and
Procedures since the date of the last report delivered
pursuant to paragraph (a) of this Section 6; (ii) any
material changes to the Compliance Policies and
Procedures recommended as a result of the annual review
conducted pursuant to Rule 3 8a- 1 under the 1940 Act;
and (iii) any (A) material violation of the Federal
Securities Laws by the Sub-Adviser relating to the
provision of the sub-advisory services provided under
this Agreement; (B) material violation by the Sub-
Adviser of the Compliance Policies and Procedures, the
Fund's or the Adviser's policies and procedures to the
extent such policies and procedures are previously
provided to the Sub-Adviser, and to the extent the Board
would reasonably need to know to oversee Fund
compliance; and (C) known material weakness in the
design or implementation of the Compliance Policies and
Procedures. The Sub-Adviser shall provide the notice
contemplated by clauses (i) and (ii) above within a
reasonable period of time after the event giving rise to
the notice, except that the Sub-Adviser shall promptly
notify the Fund and the Adviser of any such events which
may have a material effect upon
[4 Note: The text following romanette (ii) (and thus the reference
to romanette (i)) should be included if the Fund is a tax-exempt
Fund .]
the Sub-Adviser's ability to perform its obligations
under this Agreement. The Sub-Adviser shall provide the
notice contemplated by clause (iii) above promptly after
the event giving rise to such notice.
Shall exercise voting rights with respect to portfolio
securities held by the Fund in accordance with written
policies and procedures adopted by the Sub-Adviser,
which may be amended from time to time, and which at
all times shall comply with the requirements of
applicable federal statutes and regulations and any
related guidance from the Securities and Exchange
Commission and its staff relating to such statutes and
regulations (collectively, "Proxy Voting Policies and
Procedures"). The Sub-Adviser shall vote proxies on
behalf of the Fund in a manner deemed by the Sub-
Adviser to be in the best interests of the Fund
pursuant to the Sub-Adviser's written Proxy Voting
Policies and Procedures. The Sub-Adviser shall provide
disclosure regarding the Proxy Voting Policies and
Procedures in accordance with the requirements of Form
N-1A for inclusion in the Registration Statement of the
Trust. The Sub-Adviser shall report to the Adviser in a
timely manner a record of all proxies voted, in such
form and format that complies with acceptable federal
statutes and regulations (e.g., requirements of Form N-
PX). The Sub-Adviser shall certify at least annually or
more often as may reasonably be requested by the
Adviser, as to its compliance with its Proxy Voting
Policies and Procedures.
Agrees that it will maintain for the Fund all and only
such records as required under Rules 31 a-1 and 31 a-2
under the 1940 Act in respect to its services hereunder
and that such records are the property of the Fund and
further agrees to surrender promptly to the Fund any
such records upon the Fund's request all in accordance
with Rule 31 a-3 under the 1940 Act, provided that the
Sub-Adviser may retain a copy of those records for
compliance purposes.
Agrees to regularly report to the Adviser on the
investment program for the Fund and the issuers and
securities represented in the Fund, and will furnish
the Adviser, with respect to the Fund, such periodic
and special reports as the Board and the Adviser may
reasonably request or as may be required by applicable
law.
Will be responsible for the preparation and filing of
Schedule 1 3G and Form 1 3F with respect to the assets
of the Fund reflecting holdings over which the Sub-
Adviser and its affiliates have investment discretion.
Will comply with the Fund's policy on selective
disclosure of portfolio holdings of the Fund (the
"Procedure for Compliance with Regulation FD"), as
provided in writing to the Sub-Adviser and as may be
amended from time to time. The Sub-Adviser agrees to
provide a certification with respect to compliance with
the Fund's Procedure for Compliance with Regulation FD
as may be reasonably requested by the Fund from time to
time.
Shall promptly notify the Adviser and the Fund (i) in
the event that the SEC, CFTC, or any banking or other
regulatory body has censured the Sub-Adviser; placed
limitations upon its activities, functions or
operations; suspended or revoked its registration or
ability to serve as an investment adviser; or has
commenced proceedings or an investigation that can
reasonably be expected to result in any of these
actions; (ii) upon having a reasonable basis for
believing that the Fund has ceased to qualify or might
not qualify as a regulated investment company under
Subchapter M of the Code; and (iii) upon having a
reasonable basis for believing that the Fund has ceased
to comply with the diversification provisions of Section
8 17(h) of the Code or the regulations thereunder. The
Sub-Adviser further agrees to notify in writing the
Adviser and Fund promptly of any material fact known to
the Sub-Adviser respecting or relating to the Sub-
Adviser that should be but is not contained in the
Registration Statement of the Trust, or any amendment or
supplement thereto, or of any statement contained
therein regarding the Sub-Adviser that becomes untrue in
any material respect.
For the avoidance of doubt, the Sub-Adviser shall not
be responsible for compliance by the Trust's Board of
Trustees or officers (including the Chief Compliance
Officer) or by the Adviser with their respective
obligations under the 1940 Act (including Rule 38a-1
under the 1940 Act), the Code, and the regulations
thereunder, and under any federal, state or self-
regulatory organization's laws, rules, regulations or
orders applicable to them.
SECTION 7. Adviser Representations and Warranties.
The Adviser represents and warrants to the Sub-Adviser
that (i) the retention of the Sub-Adviser by the Adviser
as contemplated by this Agreement is authorized by the
governing documents of the Adviser; (ii) the execution,
delivery and performance of each of this Agreement and
the Advisory Agreement does not violate any obligation
by which the Adviser or its property is bound, whether
arising by contract, operation of law or otherwise;
(iii) the Adviser has met and will seek to continue to
meet for so long as this Agreement remains in effect,
any other applicable federal or state requirements, or
the applicable requirements of any regulatory or
industry self-regulatory agency necessary to be met in
order to perform the services contemplated by the
Advisory Agreement; (iv) the Adviser will promptly
notify the Sub-Adviser of the occurrence of any event
that would disqualify the Adviser from serving as an
investment adviser of an investment company pursuant to
Section 9(a) of the 1940 Act or otherwise; and (v) each
of this Agreement and the Advisory Agreement has been
duly authorized by appropriate action of the Adviser and
when executed and delivered by the Adviser will be the
legal, valid and binding obligation of the Adviser,
enforceable against the Adviser in accordance with its
terms hereof subject, as to enforcement, to applicable
bankruptcy, insolvency and similar laws affecting
creditors' rights generally and to general equitable
principles (regardless of whether enforcement is sought
in a proceeding in equity or law).
The Adviser agrees that it will, upon request, provide
any information reasonably requested by the Sub-Adviser
regarding the scope and coverage of the Adviser's and
the Trust's errors and omissions and professional
liabilities policy.
The Adviser represents and warrants to the Sub-Adviser
that neither it, nor any of its affiliates, will
knowingly in any way refer directly or indirectly to the
term, words or initials "GE," "GEAM," "GE Asset
Management," "GEID," "GE Investment Distributors" or
"General Electric," or to any derivative or confusingly
similar name, or refer to or use any trade name or
trademark owned or licensed by the Sub-Adviser or its
affiliates including but not limited to the distinctive
GE circular logo or slogans, in any disclosure,
offering, advertising or marketing materials for the
Fund, subject to the following exceptions: (a) with the
Sub-Adviser's prior written approval of material or
forms of advertising or disclosure including those
intended for repeated use, after a reasonable
opportunity to review the proposed use or form, (b)
naming GE Asset Management Incorporated or GEAM as the
sub-adviser to the Fund or (c) to the limited extent
required by rule, regulation or upon the request of a
governmental authority.
SECTION 8. Sub-Adviser Representations and
Warranties.
The Sub-Adviser represents and warrants to the Adviser
that (i) the Sub-Adviser is registered as an investment
adviser under the Advisers Act and will continue to be
so registered for so long as this Agreement remains in
effect; (ii) the Sub-Adviser is not prohibited by the
1940 Act, the Advisers Act or other law, regulation or
order from performing the services contemplated by this
Agreement; (iii) the Sub-Adviser has met and will seek
to continue to meet for so long as this Agreement
remains in effect, any other applicable federal or state
requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency necessary
to be met in order to perform the services contemplated
by this Agreement; (iv) the Sub-Adviser has the
authority to enter into and perform the services
contemplated by this Agreement; (v) the Sub-Adviser will
promptly notify the Adviser of the occurrence of any
event that would disqualify the Sub-Adviser from serving
as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise;
(vi) this Agreement has been duly authorized by
appropriate action of the Sub-Adviser and when executed
and delivered by the Sub-Adviser will be the legal,
valid and binding obligation of the Sub-Adviser,
enforceable against the Sub-Adviser in accordance with
its terms hereof, subject, as to enforcement, to
applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to general
equitable principles (regardless of whether enforcement
is sought in a proceeding in equity or law), and the
execution, delivery and performance by the Sub-Adviser
of this Agreement does not contravene or constitute a
default under any agreement binding on the Sub-Adviser;
(vii) the Sub-Adviser has filed a notice of exemption
pursuant to Rule 4.14 under the Commodity Exchange Act
with the Commodity Futures Trading Commission and the
National Futures Association or is not required to file
such exemption; and (viii) the Sub-Adviser is duly
organized and validly existing under the laws of the
state of Delaware with the power to own
and possess its assets and carry on its business as it
is now being conducted. The Sub-Adviser will also
promptly notify the Fund and the Adviser if it is
served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or
in equity, before or by any court, public board or
body, involving the affairs of the Fund.
The Sub-Adviser represents and warrants to the Adviser
that the Sub-Adviser has adopted a written Code of
Ethics complying with the requirements of Rule 1 7j -1
under the 1940 Act and Rule 204A-1 under the Advisers
Act and will provide the Adviser and the Board with a
copy of such Code of Ethics, together with evidence of
its adoption. Within 15 days of the end of the last
calendar quarter of each year that this Agreement is in
effect, and as otherwise reasonably requested, the
president, Chief Operating Officer, Chief Compliance
Officer or a vice-president of the Sub-Adviser shall
certify to the Adviser that the Sub-Adviser has complied
with the requirements of Rule 17j-1 and Rule 204A-1
during the previous year and that there has been no
material violation of the Sub-Adviser's Code of Ethics
or, if such a material violation has occurred, that
appropriate action was taken in response to such
violation. Upon the reasonable written request of the
Adviser, the Sub-Adviser shall permit the Adviser, its
employees or its agents to examine the reports required
to be made to the Sub-Adviser by Rule 17j-1(c)(1) and
Rule 204A-1(b) and all other records relevant to the
Sub-Adviser's Code of Ethics. The Sub-Adviser further
represents and warrants to the Adviser that the Sub-
Adviser has adopted procedures reasonably necessary to
prevent Access Persons (as defined in Rule 17j-1) from
violating the Sub-Adviser's Code of Ethics.
The Sub-Adviser represents and warrants to the Adviser
that the Sub-Adviser has provided the Fund and the
Adviser with a copy of its Form ADV Part I and Part
II, which as of the date of this Agreement is its Form
ADV I as most recently filed with the SEC and promptly
will furnish a copy of all amendments to its Form ADV
Part I and Part II to the Trust and the Adviser at least
annually. Such amendments shall reflect all changes in
the Sub-Adviser's organizational structure, professional
staff or other significant developments affecting the
Sub-Adviser, as required by the Advisers Act.
The Sub-Adviser represents and warrants to the Adviser
that the Sub-Adviser will promptly notify the Adviser of
any change of control of the Sub-Adviser, including any
change of its direct or indirect 25% shareholders, and
any changes in the key personnel of the Sub-Adviser,
including without limitation, any change in the
portfolio manager(s) of the Fund, in each case prior to
or, to the extent prior notice is not practicable,
promptly after such change. Notwithstanding the
foregoing and subject upon the reasonable request of the
Sub-Adviser to the terms of Section 14 of this
Agreement, the Sub-Adviser will promptly notify the
Adviser of any existing agreement, or upon entering into
any agreement, that may result in a change in control of
the Sub-Adviser. The Sub-Adviser will be liable to the
Trust and the Adviser for all direct and indirect costs
resulting from a change in control of the Sub-Adviser,
including without limitation all costs
associated with proxy solicitations, meetings of the
Board of Trustees, revisions to prospectuses,
statements of additional information and marketing
materials in connection with the re-hiring of the Sub-
Adviser.
(e) The Sub-Adviser represents and warrants to the Adviser
that the Sub-Adviser agrees to maintain an appropriate
level of errors and omissions or professional liability
insurance coverage. The Sub-Adviser shall provide prior
written notice to the Adviser if any claims will be made
under its insurance policies to the extent they relate
to the services provided hereunder. Further, it shall
upon request provide to the Adviser any information it
may reasonably require concerning the amount or scope
of such insurance to the extent related to the Sub-
Adviser's obligations under this Agreement.
(f) The Sub-Adviser represents and warrants to the Adviser
that the Sub-Adviser agrees that neither it, nor any of
its affiliates, will knowingly in any way refer
directly or indirectly to its relationship with the
Trust, the Fund, the Adviser or any of their respective
affiliates in offering, marketing or other promotional
materials without the express written consent of the
Adviser, except as required by rule, regulation or upon
the request of a governmental authority. However, the
Sub-Adviser may use the performance of the Fund in its
composite performance.
(g) The Sub-Adviser represents and warrants to the Adviser
that the Sub-Adviser shall act honestly, in good faith
and in the best interests of the Fund including
requiring any of its personnel with knowledge of the
Fund's activities to place the interest of the Fund
ahead of their own interests, in all personal trading
scenarios that may involve a conflict of interest with
the Fund.
SECTION 9. Limitation of Liability.
The Sub-Adviser shall not be liable to the Trust or the
Adviser for any loss suffered by the Fund, the Trust or its
shareholders or by the Adviser in connection with the matters
to which this Agreement relates, except (a) a loss resulting
from willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this
Agreement, and (b) to the extent otherwise provided in
Section 36(b) of the 1940 Act concerning loss resulting from
a breach of fiduciary duty with respect to the receipt of
compensation for services.
SECTION 10. Indemnification.
(a) By the Adviser. The Adviser agrees to indemnify and
hold the Sub-Adviser, its officers and directors, and
any person who controls the Sub-Adviser within the
meaning of Section 15 of the Securities Act of 1933,
as amended ("1933 Act") harmless from any and all
direct or indirect liabilities, losses or damages
(including reasonable attorneys' fees) arising out of
any claim, demand, action, suit or proceeding arising
out of:
(i) The Adviser's breach of its duties under this
Agreement; or
(ii) any bad faith, willful misfeasance, reckless
disregard or gross negligence on the part of the
Adviser or any of its directors, officers or employees
in the performance of the Adviser's duties and
obligations under this Agreement, except to the extent
such loss results from the Sub-Adviser's own willful
misfeasance, bad faith, reckless disregard or gross
negligence in the performance of Sub-Adviser's duties
and obligations under this Agreement.
By the Trust.
(i) The Trust agrees to indemnify and hold the Sub-
Adviser, its officers and directors, and any person who
controls the Sub-Adviser within the meaning of Section
15 of the 1933 Act (each, a "Sub-Adviser Indemnitee")
harmless from any and all direct or indirect
liabilities, losses or damages (including reasonable
attorneys' fees) arising out of any claim, demand,
action, suit or proceeding arising out of any
misrepresentation of a material fact or the omission of
a fact necessary to make information not misleading in
the Registration Statement, any proxy statement, or any
annual or semi-annual report to investors in the Fund
(other than a misstatement or omission relating to
disclosure about the Sub-Adviser approved by the Sub-
Adviser or provided to the Adviser or the Trust by the
Sub-Adviser).
(ii) As to any matter disposed of by settlement or a
compromise payment by such Sub-Adviser Indemnitee,
pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other
expenses shall be provided unless there has been a
determination that such settlement or compromise is in
the best interests of the Trust and that such Sub-
Adviser Indemnitee appears to have acted in good faith
in the reasonable belief that such Sub-Adviser
Indemnitee's action was in the best interests of the
Trust and did not involve willful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Sub-Adviser
Indemnitee's position (such conduct, "Disabling
Conduct"). With respect to any action, suit or other
proceeding voluntarily prosecuted by any Sub-Adviser
Indemnitee as plaintiff, indemnification shall be
mandatory only if the prosecution of such action, suit
or other proceeding by such Sub-Adviser Indemnitee was
authorized by a majority of the full Board of Trustees
of the Trust. Notwithstanding the foregoing, the Trust
shall not be obligated to provide any such
indemnification to the extent such provision would waive
any right that the Trust cannot lawfully waive.
(iii) All determinations with respect to indemnification
hereunder shall be made (1) by a final decision on the
merits by a court or other body of competent
jurisdiction before whom the proceeding was brought that
such Sub-Adviser Indemnitee is not liable by reason of
Disabling Conduct or, (2) in the absence of such a
decision, by (i) a majority vote of a quorum of the
Trustees of the Trust who are neither "interested
persons" of the Trust (as defined in Section 2(a)(1 9) of
the 0000 Xxx) nor parties to the proceeding, or (ii) if
such a quorum is not obtainable or even if obtainable,
if a majority vote of such quorum so directs,
independent legal counsel in a written opinion.
By the Sub-Adviser. The Sub-Adviser agrees to indemnify
and hold the Adviser, its officers and directors, and
any person who controls the Adviser within the meaning
of Section 15 of the 1933 Act, and the Trust harmless
from any and all direct or indirect liabilities, losses
or damages (including reasonable attorneys' fees)
arising out of any claim, demand, action, suit or
proceeding arising out of:
(i) any misrepresentation of a material fact or the
omission of a fact necessary to make information not
misleading in the Registration Statement, any proxy
statement, any annual or semi-annual report to
investors in the Fund, any other reports filed with the
SEC or any marketing material of the Fund relating to
disclosure about the Sub-Adviser approved by the Sub-
Adviser in writing or provided to the Adviser or the
Trust by the Sub-Adviser;
(ii) Sub-Adviser's breach of its duties under this
Agreement; or
(iii) any bad faith, willful misfeasance, reckless
disregard or gross negligence on the part of the Sub-
Adviser or any of its directors, officers or employees
in the performance of the Sub-Adviser's duties and
obligations under this Agreement, except to the extent
such loss results from the Trust's or the Adviser s own
willful misfeasance, bad faith, reckless disregard or
gross negligence in the performance of their respective
duties and obligations under the Advisory Agreement or
this Agreement.
SECTION 11. Duration and Termination of this
Agreement.
Duration. This Agreement shall become effective on the
date first set forth above, such date being the date on
which this Agreement has been executed following: (1)
the approval of the Trust's Board of Trustees, including
approval by a vote of a majority of the Trustees who are
not "interested persons" (as defined in the 0000 Xxx) of
the Fund, cast in person at a meeting called for the
purpose of voting on such approval; and (2) the approval
by a "vote of a majority of the outstanding voting
securities" (as defined in the 0000 Xxx) of the Fund.
Unless terminated as herein provided, this Agreement
shall remain in full force and effect until the date
that is two years after the effective date of this
Agreement. Subsequent to such initial period of
effectiveness, this Agreement shall continue in full
force and effect, subject to paragraph 11(c), so long as
such continuance is approved at least annually (a) by
either the Trust's Board of Trustees or by a "vote of a
majority of the outstanding voting securities" (as
defined in the 0000 Xxx) of the Fund and (b) in either
event, by the vote of a majority of the Trustees of the
Fund 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 approval.
Amendment. No provision of this Agreement may be
amended, waived, discharged or terminated orally, but
only by an instrument in writing signed by the party
against which enforcement of the amendment, waiver,
discharge or termination is sought. No material
amendment to this Agreement shall be
effective until approved by a vote of a majority of the
Fund's outstanding voting securities, unless the Trust
receives an SEC exemptive order or opinion of counsel,
or the issue is the subject of a position of the SEC or
its staff permitting it to modify the Agreement without
such vote (including but not limited to the
interpretation thereof that amendments that do not
increase the compensation of the Sub-Adviser or
otherwise fundamentally alter the relationship of the
Trust with the Sub-Adviser do not require shareholder
approval if approved by the requisite majority of the
Trust's Trustees who are not "interested persons" (as
defined in the 0000 Xxx) of the Trust).
(c) Termination. This Agreement may be terminated (i) at any
time, without payment of any penalty, by vote of the
Trust's Board of Trustees, or by a "vote of a majority
of the outstanding voting securities" (as defined in the
0000 Xxx) of the Fund, (ii) at any time, without payment
of a penalty, by the Adviser (1) upon no less than 60
days' prior written notice to the Sub-Adviser; (2) upon
material breach by the Sub-Adviser of any of the
representations and warranties set forth in this
Agreement; or (3) if the Sub-Adviser becomes unable to
discharge its duties and obligations under this
Agreement, including circumstances such as financial
insolvency of the Sub-Adviser or other circumstances
that could adversely affect the Fund, or (iii) by the
Sub-Adviser upon no less than 60 days' prior written
notice to the Adviser. All rights to compensation under
this Agreement shall survive the termination of this
Agreement. 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 thirty
(30) days of the date of termination.
(d) Automatic Termination. This Agreement shall
automatically and immediately terminate in the event of
its "assignment" (as defined in the 0000 Xxx) or upon
termination of the Advisory Agreement.
SECTION 12. Prohibited Conduct.
In providing the services described in this Agreement, the
Sub-Adviser will not consult with any other investment advisory
firm that provides investment advisory services to any investment
company sponsored by the Adviser, including the Fund, regarding
transactions in portfolio securities or other portfolio
investments of the Fund.
SECTION 13. Services Not Exclusive.
The services of the Sub-Adviser to the Fund hereunder are not
to be deemed exclusive, and the Sub-Adviser (and its affiliates)
shall be free to render similar services to others so long as its
services hereunder are not impaired thereby; provided, however,
that the Sub-Adviser will undertake no activities that, in its
reasonable good faith judgment, will adversely affect the
performance of its obligations under this Agreement. In addition,
the parties may enter into other agreements pursuant to which the
Sub-Adviser provides administrative or other, non-investment
advisory services to the Fund, and the Sub-Adviser may be
compensated for such other services.
SECTION 14. Confidentiality.
During the term of this Agreement, and at all times
thereafter, the Sub-Adviser shall not itself, or assist anyone
else to, directly or indirectly, disclose to any person or entity
Confidential Information of the Adviser, the Trust or the Fund,
now known or subsequently learned by the Sub-Adviser, provided
that the Sub-Adviser may disclose Confidential Information to the
extent reasonably necessary to perform its duties under this
Agreement such as to broker-dealers, lawyers, accountants and
other agents and, provided, further, Confidential Information may
be disclosed to the extent required by law or by an order or
decree of any court or other governmental authority; provided,
however, that the Sub-Adviser will, if legally compelled to
disclose such information: (i) provide the Adviser with prompt
written notice of that fact so that the Adviser may attempt to
obtain a protective order or other appropriate remedy and/or waive
compliance with the provisions of this Agreement; and (ii)
endeavor to obtain assurance that confidential treatment will be
accorded the information so disclosed. "Confidential Information"
shall mean any information, whether written or oral, and materials
furnished to or obtained by the Sub-Adviser, including but not
limited to that which relates to the Adviser, the Trust, the Fund,
and their affiliates, clients, customers, vendors, or other third
party's research, development, trade secrets, techniques,
processes, procedures, plans, policies, business affairs,
marketing activities, discoveries, hardware, software, screens,
specifications, designs, drawings, data and other information and
materials, regardless of its form, other than information in the
public domain.
In addition, the Adviser and the Sub-Adviser each agree,
during the term of this Agreement, not to (and to cause its
respective affiliates and its and its affiliates' directors,
officers, employees, agents, advisors, financing sources and
representatives not to) initiate or maintain contact (except for
those contacts made in the ordinary course of business or in the
course of performance of its obligations under this Agreement)
with any officer, director, employee, or agent of the other party
or its affiliates regarding the other party's business,
operations, prospects or finances, except with the other party's
express written consent. In addition, each of the Adviser and the
Sub-Adviser agree that, during the term of this Agreement, neither
it nor any of its affiliates will, directly or indirectly, solicit
the employment of or hire any current officer or employee of the
other party or its affiliates with whom such party comes into
contact in connection with the performance of its obligations
under this Agreement, but only for so long as such officer or
employee is employed by the other party or its affiliates. The
phrase "solicit the employment of" (and any hiring resulting from
such solicitation) shall not be deemed to include (i) general
solicitation of employment not specifically directed towards
employees of the other party or (ii) responding to unsolicited
requests for employment.
SECTION 15. Notices.
Notices under this Agreement shall be in writing and shall be
addressed, and delivered or mailed postage prepaid, to the other
party at such address as such other party may designate from time
to time for the receipt of such notices. Until further notice to
the other party, the address of the Trust and the Adviser for this
purpose shall be NexBank Tower, 00000 Xxxx Xxxx, Xxxxx 000,
Xxxxxx, Xxxxx 00000 and the address of the Sub-Adviser for this
purpose shall be 0000 Xxxxxx Xxxxxx, Xxxxxxxx, Xxxxxxxxxxx 00000,
Attention: General Counsel.
SECTION 16. Governing Law; Severability;
Counterparts.
This Agreement shall be construed in accordance with the laws
of the State of Delaware and the applicable provisions of the 1940
Act. To the extent that applicable law of the State of Delaware,
or any of the provisions herein, conflict with applicable
provisions of the 1940 Act, the latter shall control. 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. This Agreement may be
executed in any number of counterparts, each of which shall be
deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
SECTION 17. Miscellaneous.
Where the effect of a requirement of the 1940 Act reflected
in or contemplated by any provisions of this Agreement is altered
by a rule, regulation or order of the SEC, whether of special or
general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first set forth above.
HIGHLAND FUNDS ASSET MANAGEMENT, L.P.
By: Strand Advisors XVI, Inc., its general partner
By:
Name:
Title:
Highland Funds II,
SOLELY WITH RESPECT TO SECTION 10(b) OF
THIS AGREEMENT
By:
Name:
Title:
GE ASSET MANAGEMENT INCORPORATED
By:
Name:
Title:
Schedule of Sub-Advisory Fees for GE Asset Management
Incorporated
(attach to form of Sub-Advisory Agreement)
The following annual rates will apply under Section 5(a) of
the proposed Investment Sub-Advisory Agreement by and among
Highland Funds Asset Management, L.P., Highland Funds II (to
be renamed from GE Funds), on behalf of its series named
below, and GE Asset Management Incorporated:
Name of Fund Sub-Advisory Fee
(annual rate)
Asset Allocation Fund
Highland Total Return Fund fka GE Total
Return Fund 0.250%
