FORM OF
SUB-ADVISORY AGREEMENT
TOUCHSTONE BARON SMALL CAP FUND
TOUCHSTONE VARIABLE SERIES TRUST
This SUB-ADVISORY AGREEMENT is made as of April 28, 2003, by and between
TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and BAMCO, INC.,
a New York Corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Variable Series Trust (the "Trust"), a Massachusetts business trust organized
pursuant to a Declaration of Trust dated February 7, 1994 and registered as an
open-end diversified management investment company under the Investment Company
Act of 1940 (the "1940 Act"), to provide investment advisory services with
respect to certain assets of the Touchstone Baron Small Cap Fund (the "Fund");
and
WHEREAS, the Sub-Advisor also is an investment advisor registered under the
Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it with
portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter set
forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of that portion of the
assets of the Fund allocated to it by the Advisor (which portion, until changed
by the Advisor by not less than ten days prior written notice, shall be 100% of
the total assets of the Fund) (the said portion, as it may be changed from time
to time, being herein called the "Fund Assets"), subject to the control and
direction of the Advisor and the Trust's Board of Trustees, for the period and
on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all
applicable laws and regulations, both state and federal. The Sub-Advisor shall
for all purposes herein be deemed an independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust or the Fund.
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the following
services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the
assets of the Fund, subject to and in accordance with the investment
objectives, policies and restrictions of the Fund and any directions which
the Advisor or the Trust's Board of Trustees may give from time to time
with respect to the Fund. In furtherance of the foregoing, the Sub-Advisor
will make all determinations with respect to the investment of the Fund
Assets and the purchase and sale of portfolio securities and shall take
such steps as may be necessary or advisable to implement the same. The
Sub-Advisor also will determine the manner in which voting rights, rights
to consent to corporate action and any other rights pertaining to the
portfolio securities will be exercised. The Sub-Advisor will render regular
reports to the Trust's Board of Trustees and to the Advisor (or such other
advisor or advisors as the Advisor shall engage to assist it in the
evaluation of the performance and activities of the Sub-Advisor). Such
reports shall be made in such form and manner and with respect to such
matters regarding the Fund and the Sub-Advisor as the Trust or the Advisor
shall from time to time request; provided, however, that in the absence of
extraordinary circumstances, the individual primarily responsible for
management of Fund Assets for the Sub-Advisor will not be required to
attend in person more than one meeting per year with the trustees of the
Trust.
b. The Sub-Advisor shall provide support to the Advisor with respect
to the marketing of the Fund, including but not limited to: (i) permission
to use the Sub-Advisor's name as provided in Section 5, (ii) permission to
use the past performance and investment history of the Sub-Advisor with
respect to a composite of other funds managed by the Sub-Advisor that are
comparable, in investment objective and composition, to the Fund, (iii)
access to the individual(s) responsible for day-to-day management of the
Fund for marketing conferences, teleconferences and other activities
involving the promotion of the Fund, subject to the reasonable request of
the Advisor, (iv) permission to use biographical and historical data of the
Sub-Advisor and individual manager(s), and (v) permission to use the names
of those clients pre-approved by the Sub-Advisor to which the Sub-Advisor
provides investment management services, subject to receipt of the consent
of such clients to the use of their names.
-2-
c. The Sub-Advisor will, in the name of the Fund, place orders for the
execution of all portfolio transactions in accordance with the policies
with respect thereto set forth in the Trust's registration statements under
the 1940 Act and the Securities Act of 1933, as such registration
statements may be in effect from time to time. In connection with the
placement of orders for the execution of portfolio transactions, the
Sub-Advisor will create and maintain all necessary brokerage records of the
Fund in accordance with all applicable laws, rules and regulations,
including but not limited to records required by Section 31(a) of the 1940
Act. All records shall be the property of the Trust and shall be available
for inspection and use by the Securities and Exchange Commission (the
"SEC"), the Trust or any person retained by the Trust. Where applicable,
such records shall be maintained by the Advisor for the periods and in the
places required by Rule 31a-2 under the 1940 Act. When placing orders with
brokers and dealers, the Sub-Advisor's primary objective shall be to obtain
the most favorable price and execution available for the Fund, and in
placing such orders the Sub-Advisor may consider a number of factors,
including, without limitation, the overall direct net economic result to
the Fund (including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing competitive
range), the financial strength and stability of the broker, the efficiency
with which the transaction will be effected, the ability to effect the
transaction at all where a large block is involved and the availability of
the broker or dealer to stand ready to execute possibly difficult
transactions in the future. The Sub-Advisor is specifically authorized, to
the extent authorized by law (including, without limitation, Section 28(e)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
to pay a broker or dealer who provides research services to the Sub-Advisor
an amount of commission for effecting a portfolio transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting such transaction, in recognition of such additional research
services rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided by
such broker or dealer viewed in terms of the particular transaction or the
Sub-Advisor's overall responsibilities with respect to discretionary
accounts that it manages, and that the Fund derives or will derive a
reasonably significant benefit from such research services. The Sub-Advisor
will present a written report to the Board of Trustees of the Trust, at
least quarterly, indicating total brokerage expenses, actual or imputed, as
well as the services obtained in consideration for such expenses, broken
down by broker-dealer and containing such information as the Board of
Trustees reasonably shall request.
-3-
d. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than 30
days) after such reorganization or change.
e. The Sub-Advisor will bear its expenses of providing services to the
Fund pursuant to this Agreement except such expenses as are undertaken by
the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the investment and
reinvestment of such assets so as to comply with the provisions of the 1940
Act and with Subchapter M of the Internal Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to ______% of the
average daily net Fund Assets. Such fee shall be computed and accrued
daily. If the Sub-Advisor serves in such capacity for less than the whole
of any period specified in this Section 3a, the compensation to the
Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the Fund Assets shall be computed by
the same method as the Trust uses to compute the net asset value of the
Fund for purposes of purchases and redemptions of shares thereof.
b. The Sub-Advisor reserves the right to waive all or a part of its
fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor may
perform investment advisory services for various other clients, including other
investment companies. The Sub-Advisor will report to the Board of Trustees of
the Trust (at regular quarterly meetings and at such other times as such Board
of Trustees reasonably shall request, subject to the limitation on personal
attendance at such meetings set forth in Section 2a) (i) the financial condition
and prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as
-4-
compared to its other accounts and the plans of, and the capability of, the
Sub-Advisor with respect to providing future services to the Fund and its other
accounts. The Sub-Advisor agrees to submit to the Trust a statement defining its
policies with respect to the allocation of business among the Fund and its other
clients.
It is understood that the Sub-Advisor may become interested in the Trust as
a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto and will hereafter supply to
the Advisor, promptly upon the preparation thereof, copies of all amendments or
restatements of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name of
the Sub-Advisor in any prospectus, sales literature or other material relating
to the Advisor or the Trust in any manner not approved in advance by the
Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses of
its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful misfeasance,
bad faith, gross negligence, or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be subject
to liability to the Advisor, the Trust or to any shareholder in the Fund for any
act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that it
has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-
-5-
Advisor shall not seek satisfaction of any such obligation from the holders of
shares of the Fund nor from any Trustee, officer, employee or agent of the
Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but not
limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner terminated
as hereinafter provided, until _________________; and it shall continue
thereafter provided that such continuance is specifically approved by the
parties and, in addition, at least annually by (i) the vote of the holders
of a majority of the outstanding voting securities (as herein defined) of
the Fund or by vote of a majority of the Trust's Board of Trustees and (ii)
by the vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the Sub-Advisor,
cast in person at a meeting called for the purpose of voting on such
approval.
b. This Agreement may be terminated at any time, without payment of
any penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting securities of the Fund, in
any such case upon not less than 60 days' prior written notice to the
Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60 days' prior
written notice to the Advisor and the Trust. This Agreement shall terminate
automatically in the event of its assignment.
c. This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if required by
applicable SEC rules and regulations, a vote of the majority of the
outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the
outstanding voting securities" shall have the meaning set forth for such
terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or shall
be found to be invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
-6-
11. NOTICE. Any notices under this Agreement shall be in writing addressed
and delivered personally (or by telecopy) or mailed postage-paid, to the other
party at such address as such other party may designate in accordance with this
paragraph for the receipt of such notice. Until further notice to the other
party, it is agreed that the address of the Trust and that of the Advisor for
this purpose shall be 000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxxx, Xxxx 00000
and that the address of the Sub-Advisor shall be 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000.
12. MISCELLANEOUS. Each party agrees to perform such further actions and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
______________________________ BY _______________________________
Xxxxxxx Xxxxxxxx
Name: ________________________ President
Title: _______________________
BAMCO, INC.
Attest:
______________________________ BY _______________________________
Name: ________________________ Name:_____________________________
Title: _______________________ Title: ___________________________
-7-
