Exhibit (d)(40)
NORTHERN FUNDS
SUB-ADVISORY AGREEMENT
MULTI-MANAGER SMALL CAP FUND
Sub-Advisory Agreement (this "Agreement") entered into as of the 22nd
day of June, 2006, by and among Northern Trust Investments, N.A. and Northern
Trust Global Advisors, Inc. (together, the "Advisers"), and Xxxxxxx Xxxxx &
Company, LLC, a Delaware limited liability company (the "Sub-Adviser").
WHEREAS, the Advisers have entered into an Investment Advisory and
Ancillary Services Agreement dated May 5, 2006 (the "Advisory Agreement") with
Northern Funds (the "Trust"), relating to the provision of portfolio management
and administrative services to the Multi-Manager Small Cap Fund (the "Fund");
WHEREAS, the Advisory Agreement provides that the Advisers may
delegate any or all of their portfolio management responsibilities under the
Advisory Agreement to one or more sub-advisers;
WHEREAS, the Advisers and the Trustees of the Trust desire to retain
the Sub-Adviser to render portfolio management services to the Fund in the
manner and on the terms set forth in this Agreement, and the Sub-Adviser is
willing to provide such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. Sub-Advisory Services.
(a) The Advisers hereby appoint the Sub-Adviser to act as an
investment adviser to the Fund for the periods and on the terms
herein set forth. The Sub-Adviser accepts such appointment and
agrees to render the services herein set forth, for the
compensation herein provided.
(b) The Sub-Adviser shall, subject to the supervision and oversight
of the Advisers, manage the investment and reinvestment of such
portion of the assets of the Fund, as the Advisers may from time
to time allocate to the Sub-Adviser for management (the
"Sub-Advised Assets"). The Sub-Adviser shall manage the
Sub-Advised Assets in conformity with (i) the investment
objective, policies and restrictions of the Fund set forth in the
Trust's prospectus and statement of additional information
relating to the Fund, as they may be amended from time to time,
any additional policies or guidelines, including without
limitation compliance policies and procedures, established by the
Advisers, the Trust's Chief Compliance Officer, or by the Trust's
Board of Trustees ("Board") that have been furnished in writing
to the Sub-Adviser, (ii) the asset diversification tests
applicable to regulated investment companies pursuant to section
851(b)(3) of the Internal Revenue Code, (iii) the written
instructions and directions received from the Advisers and the
Trust as delivered; and (iv) the requirements of the Investment
Company Act of 1940 (the "1940 Act"), the Investment Advisers Act
of 1940 ("Advisers Act"), and all other federal and state laws
applicable to registered investment companies and the
Sub-Adviser's duties under this Agreement, all as may be in
effect from time to time. The foregoing are referred to below
together as the "Policies."
For purposes of compliance with the Policies, the Sub-Adviser
shall be entitled to treat the Sub-Advised Assets as though the
Sub-Advised Assets constituted the entire Fund, and the
Sub-Adviser shall not be responsible in any way for the
compliance of any assets of the Fund, other than the Sub-Advised
Assets, with the Policies. Subject to the foregoing, the
Sub-Adviser is authorized, in its discretion and without prior
consultation with the Advisers, to buy, sell, lend and otherwise
trade in any stocks, bonds and other securities and investment
instruments on behalf of the Fund, without regard to the length
of time the securities have been held and the resulting rate of
portfolio turnover or any tax considerations; and the majority or
the whole of the Sub-Advised Assets may be invested in such
proportions of stocks, bonds, other securities or investment
instruments, or cash, as the Sub-Adviser shall determine.
Notwithstanding the foregoing provisions of this Section 1(b),
however, (i) the Sub-Adviser shall, upon and in accordance with
written instructions from either of the Advisers, effect such
portfolio transactions for the Sub-Advised Assets as the Adviser
shall determine are necessary in order for the Fund to comply
with the Policies, and (ii) upon notice to the Sub-Adviser, the
Advisers may effect in-kind redemptions with shareholders of the
Fund with securities included within the Sub-Advised Assets.
(c) Absent instructions from the Advisers or the officers of the
Trust to the contrary, the Sub-Adviser shall place orders
pursuant to its determinations either directly with the issuer or
with any broker and/or dealer or other person who deals in the
securities in which the Fund is trading. With respect to common
and preferred stocks, in executing portfolio transactions and
selecting brokers or dealers, the Sub-Adviser shall use its best
judgment to obtain the best overall terms available. In assessing
the best overall terms available for any transaction, the
Sub-Adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of
the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission,
if any, both for the specific transaction and on a continuing
basis. In evaluating the best overall terms available and in
selecting the broker or dealer to execute a particular
transaction, the Sub-Adviser may also consider the brokerage and
research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934) provided to the Fund and/or
other account over which the Sub-Adviser and/or an
affiliate of the Sub-Adviser exercises investment discretion.
With respect to securities other than common and preferred
stocks, in placing orders with brokers, dealers or other persons,
the Sub-Adviser shall attempt to obtain the best net price and
execution of its orders, provided that to the extent the
execution and price available from more than one broker, dealer
or other such person are believed to be comparable, the
Sub-Adviser may, at its discretion but subject to applicable law,
select the executing broker, dealer or such other person on the
basis of the Sub-Adviser's opinion of the reliability and quality
of such broker, dealer or such other person; broker or dealers
selected by the Sub-Adviser for the purchase and sale of
securities or other investment instruments for the Sub-Advised
Assets may include brokers or dealers affiliated with the
Sub-Adviser, provided such orders comply with Rules 17e-1 and
10f-3 under the 1940 Act and the Trust's Rule 17e-1 and Rule
10f-3 Procedures, respectively, in all respects or any other
applicable exemptive rules or orders applicable to the
Sub-Adviser. Notwithstanding the foregoing, the Sub-Adviser will
not effect any transaction with a broker or dealer that is an
"affiliated person" (as defined under the 0000 Xxx) of the
Sub-Adviser or the Advisers without the prior approval of the
Advisers. The Advisers shall provide the Sub-Adviser with a list
of brokers or dealers that are affiliated persons of the
Advisers.
(d) The Sub-Adviser acknowledges that the Advisers and the Trust may
rely on Rules 17a-7, 17a-10, 10f-3 and 17e-1 under the 1940 Act,
and the Sub-Adviser hereby agrees that it shall not consult with
any other investment adviser to the Trust with respect to
transactions in securities for the Sub-Advised Assets or any
other transactions in the Trust's assets, other than for the
purposes of complying with the conditions of paragraphs (a) and
(b) of Rule 12d3-1 under the 1940 Act.
(e) The Sub-Adviser has provided the Advisers with a true and
complete copy of its compliance policies and procedures for
compliance with "federal securities laws" (as such term is
defined under Rule 38a-1 of the 0000 Xxx) and Rule 206(4)-7 of
the Advisers Act (the "Sub-Adviser Compliance Policies"). The
Sub-Adviser's chief compliance officer ("Sub-Adviser CCO") shall
provide to the Trust's Chief Compliance Officer ("Trust CCO") or
his or her delegatee promptly (and in no event more than 10
business days) the following:
(i) a report of any material changes to the Sub-Adviser
Compliance Policies;
(ii) a report of any "material compliance matters," as defined by
Rule 38a-1 under the 1940 Act, that have occurred in
connection with the Sub-Adviser Compliance Policies;
(iii) a copy of the Sub-Adviser CCO's report with respect to the
annual review of the Sub-Adviser Compliance Policies
pursuant to Rule 206(4)-7 under the Advisers Act; and
(iv) an annual (or more frequently as the Trust CCO may request)
certification regarding the Sub-Adviser's compliance with
Rule 206(4)-7 under the Advisers Act and Section 38a-1 of
the 1940 Act as well as the foregoing sub-paragraphs (i) -
(iii).
(f) The Sub-Adviser may, on occasions when it deems the purchase or
sale of a security to be in the best interests of the Fund as
well as other fiduciary or agency accounts managed by the
Sub-Adviser, aggregate, to the extent permitted by applicable
laws and regulations, the securities to be sold or purchased in
order to obtain the best overall terms available and execution
with respect to common and preferred stocks and the best net
price and execution with respect to other securities. 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 most fair and
equitable over time to the Fund and to its other accounts.
(g) The Sub-Adviser, in connection with its rights and duties with
respect to the Fund and the Trust shall use the care, skill,
prudence and diligence under the circumstances then prevailing
that a prudent person acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like
character and with like aims.
(h) The services of the Sub-Adviser hereunder are not deemed
exclusive and the Sub-Adviser shall be free to render similar
services to others (including other investment companies) so long
as its services under this Agreement are not impaired thereby.
The Sub-Adviser will waive enforcement of any non-compete
agreement or other agreement or arrangement to which it is
currently a party that restricts, limits, or otherwise interferes
with the ability of the Advisers to employ or engage any person
or entity to provide investment advisory or other services and
will transmit to any person or entity notice of such waiver as
may be required to give effect to this provision; and the
Sub-Adviser will not become a party to any non-compete agreement
or any other agreement, arrangement, or understanding that would
restrict, limit, or otherwise interfere with the ability of the
Advisers and the Trust or any of their affiliates to employ or
engage any person or organization, now or in the future, to
manage the Fund or any other assets managed by the Advisers.
(i) The Sub-Adviser shall furnish the Advisers and the administrators
of the Trust (together, the "Administrators") weekly, monthly,
quarterly and annual reports concerning portfolio transactions
and performance of the Sub-Advised Assets as the Advisers may
reasonably determine in such form as may be mutually agreed upon,
and agrees to review the Sub-
Advised Assets with the Advisers and discuss the management of
them. The Sub-Adviser shall promptly respond to requests by the
Advisers, the Administrators to the Trust, and the Trust CCO or
their delegatees for copies of the pertinent books and records
maintained by the Sub-Advisers relating directly to the Fund. The
Sub-Adviser shall also provide the Advisers with such other
information and reports, including information and reports
related to compliance matters, as may reasonably be requested by
them from time to time, including without limitation all material
requested by or required to be delivered to the Board.
(j) Unless otherwise instructed by the Advisers, the Sub-Adviser
shall not have the power, discretion or responsibility to vote
any proxies in connection with securities in which the
Sub-Advised Assets may be invested, and the Advisers shall retain
such responsibility.
(k) The Sub-Adviser shall cooperate promptly and fully with the
Advisers and/or the Trust in responding to any regulatory or
compliance examinations or inspections (including any information
requests) relating to the Trust, the Fund or either of the
Advisers brought by any governmental or regulatory authorities.
The Sub-Adviser shall provide the Trust CCO or his or her
delegatee with notice within a reasonable period of any
deficiencies or other issues identified by the United States
Securities and Exchange Commission ("SEC") in an examination or
otherwise that relate to or that may affect the Sub-Adviser's
responsibilities with respect to the Fund.
(l) The Sub-Adviser shall be responsible for the preparation and
filing of Schedule 13G and Form 13F on behalf of the Sub-Advised
Assets. The Sub-Adviser shall not be responsible for the
preparation or filing of any other reports required on behalf of
the Sub-Advised Assets, except as may be expressly agreed to in
writing.
(m) The Sub-Adviser shall maintain separate detailed records of all
matters pertaining to the Sub-Advised Assets, including, without
limitation, brokerage and other records of all securities
transactions. Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-1 and Rule 31a-2
promulgated under the 1940 Act that are prepared or maintained by
the Sub-Adviser on behalf of the Trust are the property of the
Trust and will be surrendered promptly to the Trust upon request.
The Sub-Adviser further agrees to preserve for the periods
prescribed in Rule 31a-2 under the 1940 Act the records required
to be maintained under Rule 31a-1 under the 1940 Act.
(n) The Sub-Adviser shall promptly notify the Advisers of any
financial condition that is likely to impair the Sub-Adviser's
ability to fulfill its commitments under this Agreement.
2. Representations and Warranties of the Parties
(a) The Sub-Adviser represents and warrants to the Advisers as
follows:
(i) The Sub-Adviser is a registered investment adviser under the
Advisers Act;
(ii) The Form ADV that the Sub-Adviser has previously provided to
the Advisers is a true and complete copy of the form as
currently filed with the SEC, and the information contained
therein is accurate and complete in all material respects
and does not omit to state any material fact necessary in
order to make the statements made, in light of the
circumstances under which they are made, not misleading. The
Sub-Adviser will promptly provide the Advisers and the Trust
with a complete copy of all subsequent amendments to its
Form ADV;
(iii) The Sub-Adviser will carry at all times, and with companies
rated by A.M. Best Company with at least an A-VII rating, or
its equivalent, professional errors and omissions liability
insurance covering services provided hereunder by the
Sub-Adviser in an appropriate amount, which insurance shall
be primary to any insurance policy carried by the Advisers;
(iv) The Sub-Adviser will furnish the Advisers with certificates
of insurance in forms and substance reasonably acceptable to
the Advisers evidencing the coverages specified in paragraph
2(a)(iii) hereof and will provide notice of termination of
such coverages, if any, to the Advisers and the Trust, all
as promptly as reasonably possible. The Sub-Adviser will
notify the Advisers promptly, and in any event within 10
business days, when the Sub-Adviser receives notice of any
termination of the specified coverage; and
(v) This Agreement has been duly authorized and executed by the
Sub-Adviser.
(b) Each Adviser represents and warrants to the Sub-Adviser as
follows:
(i) Each Adviser is registered under the Advisers Act; and
(ii) Each Adviser and the Trust has duly authorized the execution
of this Agreement by the Advisers.
3. Obligations of the Advisers.
(a) The Advisers shall provide (or cause the Fund's Custodian (as
defined in Section 3 hereof) to provide) timely information to
the Sub-Adviser regarding such matters as the composition of the
Sub-Advised Assets, cash requirements and cash available for
investment in the Sub-Advised Assets, and all other information
as may be reasonably necessary for the Sub-Adviser to perform its
responsibilities hereunder.
(b) The Advisers have furnished the Sub-Adviser with a copy of the
prospectus and statement of additional information of the Fund
and they agree during the continuance of this Agreement to
furnish the Sub-Adviser copies of any revisions or supplements
thereto at, or, if practicable, before the time the revisions or
supplements become effective. The Advisers agree to furnish the
Sub-Adviser with copies of any financial statements or reports
made by the Fund to its shareholders, and any further materials
or information that the Sub-Adviser may reasonably request to
enable it to perform its functions under this Agreement.
4. Custodian. The Advisers shall provide the Sub-Adviser with a copy of the
Fund's agreement with the custodian designated to hold the assets of the
Fund (the "Custodian") and any material modifications thereto (the "Custody
Agreement") that may affect the Sub-Adviser's duties, copies of such
modifications to be provided to the Sub-Adviser reasonably in advance of
the effectiveness of such modifications. The Sub-Advised Assets shall be
maintained in the custody of the Custodian identified in, and in accordance
with the terms and conditions of, the Custody Agreement (or any
sub-custodian properly appointed as provided in the Custody Agreement). The
Sub-Adviser shall have no liability for the acts or omissions of the
Custodian, unless such act or omission is taken solely in reliance upon
instruction given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instruction under the Custody Agreement.
Any assets added to the Fund shall be delivered directly to the Custodian.
5. Use of Name. During the term of this Agreement, the Advisers shall have
permission to use the Sub-Adviser's name in the marketing of the Fund, and
agree to furnish the Sub-Adviser, for its prior approval (which approval
shall not be unreasonably withheld) at its principal office all
prospectuses, proxy statements and reports to shareholders prepared for
distribution to shareholders of the Fund or the public that refer to the
Sub-Adviser in any way. If Advisers do not receive a response from the
Sub-Adviser with respect to such materials within five business days of its
submission for approval, such materials shall be deemed accepted by the
Sub-Adviser. The Sub-Adviser agrees that Advisers may request that the
Sub-Adviser approve use of a certain type, and that Advisers need not
provide for approval each additional piece of marketing material that is of
substantially the same type.
During the term of this Agreement, the Sub-Adviser shall not use the
Advisers' names or the Trust's name without the prior consent of the
Advisers.
6. Expenses. During the Term of this Agreement, the Sub-Adviser will pay
all expenses incurred by it in connection with the performance of its
duties under paragraph 1 hereof other than the cost (including taxes,
brokerage commissions and other transaction costs, if any) of the
securities or other investment instruments purchased or sold for the Fund.
7. Compensation of the Sub-Adviser. As full compensation for all services
rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Sub-Adviser shall be paid the fees in the amounts and in the
manner set forth in Appendix A hereto.
8. Independent Contractor Status. The Sub-Adviser shall for all purposes
hereof be deemed to be an independent contractor and shall, unless
otherwise provided or authorized, have no authority to act for or represent
the Trust or the Advisers in any way or otherwise be deemed an agent of the
Fund or the Advisers.
9. Liability and Indemnification.
(a) Liability. The duties of the Sub-Adviser shall be confined to
those expressly set forth herein with respect to the Sub-Advised
Assets. The Sub-Adviser shall not be liable for any loss arising
out of any portfolio investment or disposition hereunder, except
a loss resulting from willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. Under
no circumstances shall the Sub-Adviser be liable for any loss
arising out of any act or omission taken by another sub-adviser,
or any other third party, in respect of any portion of the
Trust's assets not managed by the Sub-Adviser pursuant to this
Agreement.
(b) Indemnification.
(i) The Sub-Adviser shall indemnify the Advisers, the Trust and
the Fund, and their respective affiliates and controlling
persons (the "Adviser Indemnified Persons") for any
liability and expenses, including reasonable attorneys'
fees, which the Advisers, the Trust or the Fund and their
respective affiliates and controlling persons may sustain as
a result of the Sub-Adviser's breach of this Agreement or
its representations and warranties herein or as a result of
the Sub-Adviser's willful misfeasance, bad faith, gross
negligence, or reckless disregard of its duties hereunder or
violation of applicable law; provided, however, that the
Adviser Indemnified Persons shall not be indemnified for any
liability or expenses that may be sustained as a result of
the either of the
Advisers' willful misfeasance, bad faith, gross negligence,
or reckless disregard of their duties hereunder.
(ii) Each Adviser shall indemnify the Sub-Adviser, its affiliates
and its controlling persons (the "Sub-Adviser Indemnified
Persons") for any liability and expenses, including
reasonable attorneys' fees, arising from, or in connection
with, such Adviser's breach of this Agreement or their
representations and warranties herein or as a result of such
Adviser's willful misfeasance, bad faith, gross negligence,
reckless disregard of their duties hereunder or violation of
applicable law; provided, however, that the Sub-Adviser
Indemnified Persons shall not be indemnified for any
liability or expenses that may be sustained as a result of
the Sub-Adviser's willful misfeasance, bad faith, gross
negligence, or reckless disregard of its duties hereunder.
10. Effective Date and Termination. This Agreement shall become effective
as of the date of its execution, and:
(a) unless otherwise terminated, this Agreement shall continue in
effect until August 31, 2007, and from year to year thereafter so
long as such continuance is specifically approved at least
annually (i) by the Board or by vote of a majority of the
outstanding voting securities of the Fund, and (ii) by vote of a
majority of the Trustees of the Trust who are not interested
persons of the Trust, either of the Advisers or the Sub-Adviser,
cast in person at a meeting called for the purpose of voting on
such approval;
(b) this Agreement may at any time be terminated on 60 days' written
notice to the Sub-Adviser either by vote of the Board or by vote
of a majority of the outstanding voting securities of the Fund;
(c) this Agreement shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Agreement; and
(d) this Agreement may be terminated by the Sub-Adviser on 30 days'
written notice to the Advisers and the Trust, or by the Advisers
immediately upon notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual consent
of the Advisers and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Fund and by vote of a majority of the
Trustees of the Trust who are not interested
persons of the Trust, either of the Advisers, or the Sub-Adviser, cast in
person at a meeting called for the purpose of voting on such approval.
12. Assignment. The Sub-Adviser may not assign this Agreement and this
Agreement shall automatically terminate in the event of an "assignment," as
such term is defined in Section 2(a)(4) of the 1940 Act. The Sub-Adviser
shall notify the Advisers in writing sufficiently in advance of any
proposed change of "control," as defined in Section 2(a)(9) of the 1940
Act, so as to enable the Trust and/or the Advisers to: (a) consider whether
an assignment will occur, (b) consider whether to enter into a new
Sub-Advisory Agreement with the Sub-Adviser, and (c) prepare, file, and
deliver any disclosure document to the Fund's shareholders as may be
required by applicable law.
13. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. 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 shall be construed in accordance
with applicable federal law and the laws of the State of Illinois and shall
be binding upon and shall inure to the benefit of the parties hereto and
their respective successors (subject to paragraph 10 (c) hereof) and, to
the extent provided in paragraph 9 hereof, each Sub-Adviser and Advisers
Indemnified Person. Anything herein to the contrary notwithstanding, this
Agreement shall not be construed to require, or to impose any duty upon,
either of the parties to do anything in violation of any applicable laws or
regulations. Any provision in this Agreement requiring compliance with any
statute or regulation shall mean such statute or regulation as amended and
in effect from time to time.
14. Regulation S-P. In accordance with Regulation S-P, if non-public
personal information regarding any party's customers or consumers is
disclosed to the other party in connection with this Agreement, the other
party receiving such information will not disclose or use that information
other than as necessary to carry out the purposes of this Agreement.
15. Confidentiality. Any information or recommendations supplied by either
the Advisers or the Sub-Adviser, that are not otherwise in the public
domain or previously known to the other party in connection with the
performance of its obligations and duties hereunder, including without
limitation portfolio holdings of the Trust, financial information or other
information relating to a party to this Agreement, are to be regarded as
confidential ("Confidential Information") and held in the strictest
confidence. Except as may be required by applicable law or rule as
requested by regulatory authorities having jurisdiction over a party rule
or as requested by regulatory authorities having jurisdiction over a party
to this Agreement, Confidential Information may be used only by the party
to which said information has been communicated and such other persons as
that party believes are necessary to carry out the purposes of this
Agreement, the Custodian, and such persons as the Advisers may designate in
connection with the Sub-Advised Assets.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Illinois.
NORTHERN TRUST GLOBAL ADVISORS, INC.
By: /s/ Xxxxxxx X. Xxxxxxx, Xx.
---------------------------------
Name: Xxxxxxx X. Xxxxxxx, Xx.
Title: President
NORTHERN TRUST INVESTMENTS, N.A.
By: /s/ Xxxxx X. Xxxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: President
XXXXXXX XXXXX & COMPANY, LLC
By: /s/ Xxxx X. Xxxxxx, III
---------------------------------
Name: Xxxx X. Xxxxxx, III
Title: Principal
Appendix A
Sub-Advisory Fees
As full compensation for the services and the expenses assumed by the
Sub-Adviser pursuant to this Agreement, the Advisers shall pay the Sub-Adviser a
fee at the annual rate of [Material Redacted: Confidential Treatment Requested].
Such compensation will be computed based on net assets on each day and will
be payable monthly in arrears.
