SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made and
entered into as of this 1st day of
May, 2006, by and among Alternative Investment Partners, LLC, a Delaware limited
liability company (the “Advisor”), Seagate Global Advisors, LLC, a California
limited liability company (the “Sub-Advisor”), and the Underlying Funds Trust, a
Delaware statutory trust (the “Trust”) on behalf of its series, Global Hedged
Income - 1 (the “Fund”).
WHEREAS, the Trust and each
series comprising the Trust, including the Fund (the “Funds”), have been formed
for the purpose of creating a fund-of-funds structure with their affiliate, AIP
Alternative Strategies Funds, a Delaware statutory trust (“AIP Funds”), in which each
series of AIP Funds, including any future series of AIP Funds, invests 100% of
its assets in certain or all of the Funds; and
WHEREAS, by virtue of the
fund-of-funds structure, the Sub-Advisor will indirectly serve as a sub-advisor
to any series of AIP Funds which invests in
the Fund; and
WHEREAS, the Fund is
registered as an open-end, management investment company under the Investment
Company Act of 1940, as amended (the “1940 Act”); and
WHEREAS, the Advisor has been
appointed investment adviser to the Fund, pursuant to an Investment Advisory
Agreement dated September 27,2004, amended April 28,2006, which has been
approved by the Fund’s Board of Trustees (the “Advisory Agreement”);
and
WHEREAS, the Advisor shall
have in its sole discretion the decision as to the percentage of the Fund’s net
assets to be contributed into or subtracted from the Separate Account to be
advised by the Sub-Advisor; and
WHEREAS, the Advisor and the
Trust desire to retain the Sub-Advisor to assist the Advisor in providing a
continuous investment program for one of the separate accounts of the Fund’s
portfolio (the “Separate Account”) and the Sub-Advisor is willing to do so;
and
WHEREAS, the Board of Trustees
of the Fund has approved this Agreement, and the Sub-Advisor is willing to
furnish such services upon the terms and conditions herein set
forth.
NOW, THEREFORE, in
consideration of the premises and mutual covenants herein contained, it is
agreed between the parties hereto as follows:
1. Appointment. The
Advisor and the Trust hereby appoint the Sub-Advisor to serve as sub-advisor to
the Advisor with respect to the Separate Account. Intending to be legally bound,
the Sub-Advisor accepts such appointment and agrees to render the services
herein set forth for the compensation herein provided.
2. Advisory Services.
Subject to the supervision of the Trust’s Board of Trustees’ and the Advisor,
the Sub-Advisor will assist the Advisor in providing a continuous investment
program for the Separate Account, including investment research and management
with respect to the securities and investments and cash equivalents comprising
the Separate Account. The Sub-Advisor will provide services under this Agreement
in accordance with the Fund’s investment objective, policies and restrictions as
stated in the Fund’s Prospectus and resolutions of the Trust’s Board of Trustees
applicable to the Fund.
Without limiting the generality of the
foregoing, the Sub-Advisor further agrees that it:
(a) will
assist in determining from time to time what securities and other investments
will be purchased, retained or sold for the Separate Account;
(b) will
manage in consultation with the Advisor the Separate Account’s temporary
investments in securities, cash and cash equivalents;
(c) will
place orders pursuant to its investment determinations for the Separate Account
either directly with The issuer or with any broker or dealer;
(d) will
consult with the Advisor on a continuous basis as to the Fund’s total assets
which shall be invested in the Separate Account;
(e) will
attend regular business and investment-related meetings with the Trust’s Board
of Trustees and the Advisor if requested to do so by the Trust and/or the
Advisor: and
(f) will
maintain books and records with respect to the securities transactions for the
Separate Account, furnish to the Advisor and the Trust’s Board of Trustees such
periodic and special reports as they may request with respect to the Separate
Account, and provide in advance to the Advisor all reports to the Board of
Trustees for examination and review within a reasonable time prior to the
Trust’s Board meetings.
3. Covenants by the
Sub-Advisor. The Sub-Advisor agrees with respect to the services provided
to the Fund that it:
(a) its
retention as a Sub-Advisor, with respect to the investment of a portion of the
properties held by the Fund, as determined by the Advisor, is authorized by its
governing documents, and the terms of this Agreement do not violate any
obligation by which the Sub-Advisor is bound, whether arising by contract,
operation of law or otherwise;
(b) (will
maintain its status as a Registered Investment Advisor with the Securities and
Exchange Commission;
(c) (c) will
conform with all Rules and Regulations of the Securities and Exchange
Commission;
(d) will
telecopy trade information to the Fund’s designated Fund Accountant no later
than the fist business day following the day of the trade and cause broker
confirmations to be sent directly to the Fund’s designated Fund Accountant and
adopt such other trade reporting, settlement and clearance procedures with
respect to the Fund as shall be in accordance with the Fund’s existing
procedures and as mutually agreed by the parties hereto; and
(e) will
treat confidentially and as proprietary information of the Fund all records and
other information relative to the Fund and prior, present or potential
shareholders, and will not use such records and information for any purpose
other than performance of its responsibilities and duties hereunder (except i)
after prior written notification to the Trust, to respond to requests that are a
part of routine regulatory audits or inspections or ii) after prior notification
to and approval in writing by the Trust, which approval shall not be
unreasonably withheld, and may not be withheld and will be deemed granted where
the Sub-Advisor may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust); and
(f) will
maintain its own Code of Ethics and report to the Advisor’s Compliance Officer
any violation of such Code that pertains to the management of the Fund, via a
periodic compliance certification.
(g) will
maintain its own compliance program or manual, pursuant to Rule 206(4)-7 of the
Investment Advisors Act. The Sub-Advisor will provide either the manual or a
summary thereof, including and updates thereto, to the Advisor’s Compliance
Officer.
4. Covenants by the Advisor and
the Trust. The Advisor and the Trust agree with respect to the services
provided to the Fund:
(a) that the
retention of the Sub-Advisor as investment adviser with respect to the
investment of a portion of the properties held by the Fund, as determined by the
Advisor, is authorized by the governing documents relating to the Fund, and the
terms of this Agreement do not violate any obligation by which the Fund is
bound, whether arising by contract, operation of law or otherwise;
(b) that the
Sub-Advisor may use the Fund’s name on a representative client
list.
5. Services Not
Exclusive. The services furnished by the Sub-Advisor hereunder are deemed
not to be exclusive, and nothing in this Agreement shall (i) prevent the
Sub-Advisor or any affiliated person (as defined in the 0000 Xxx) of the
Sub-Advisor or any employee, agent, manager or affiliated person of such person
from acting as investment adviser or manager for any other person or personas,
including other management investment companies or investment vehicles or
accounts of any type with investment objectives and policies the same as or
similar to those of the Fund or (ii) limit or restrict the Sub-Advisor or any
such employee, agent, manager or affiliated person from buying, selling or
trading any securities or other investments (including any securities or other
investments which the Fund is eligible to buy) for its or their own accounts or
for the accounts of others for whom it or they may be acting; provided, however,
that the Sub-Advisor agrees that it will not undertake any activities which, in
its reasonable judgment, will adversely affect the performance of its material
obligations under this Agreement
6. Separate Account
Transactions. Investment decisions for the Separate Account shall be made
by the Sub-Advisor independently from those for any other investment companies
and accounts advised or managed by the Sub-Advisor. The Separate Account and
such investment companies and accounts may, however, invest in the same
securities. When a purchase or sale of the same security is made at
substantially the same time on behalf of the Separate Account and/or another
investment company or account, the transaction will be averaged as to price, and
available investments allocated as to amount, in a manner which the Sub-Advisor
believes to he equitable to the Fund and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or sold
by the Fund. To the extent permitted by law, the Sub-Advisor may aggregate the
securities to be sold or purchased for the Separate Account with those to be
sold or purchased for other investment companies or accounts in order to obtain
best execution.
The Sub-Advisor shall place orders for
the purchase and sale of portfolio securities
for the
Separate Account and will solicit broker-dealers to execute transactions in
accordance with the Fund’s policies and restrictions regarding brokerage
allocations. If applicable, the Sub-Advisor shall place orders pursuant to its
investment determinations for the Separate Account either directly with the
issuer or with any broker or dealer. If it executes portfolio transactions and
selects brokers or dealers, the Sub-Advisor shall use its reasonable best
efforts to seek the most favorable execution of orders, after taking into
account all factors the Sub-Advisor 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.
Consistent with this obligation, the Sub-Advisor may, to the extent permitted by
law, purchase and sell portfolio securities to and from brokers and dealers who
provide brokerage and/or research services (within the meaning of Section 28(e)
of the Securities Exchange Act of 1934) to or for the benefit of the Separate
Account and/or other accounts over which the Sub-Advisor or any of its
affiliates exercises investment discretion, The Sub-Advisor is authorized to pay
to a broker or dealer who provides such brokerage and/or research services a
commission for executing a portfolio transaction for the Separate Account which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Sub-Advisor determines in good
faith that such commission was reasonable in relation to the value of the
brokerage and/or research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Sub-Advisor’s overall
responsibilities to the Fund. In no instance will portfolio securities be
purchased from or sold to the Advisor or the Sub-Advisor or any affiliated
person of either thereof; except as permitted by Rules and Regulations of the
Securities and Exchange Commission.
7. Covenants of the
Advisor. The Advisor agrees with respect to the services provided to the
Advisor hereunder that the Advisor will conform to the applicable Rules and
Regulations of the Securities and Exchange Commission.
8. Certain Representations and
Warranties. Each of the parties hereto represents and warrants to the
other that, as of the date hereof; this Agreement has been duly and validly
authorized by all necessary action (corporate, limited liability company or
otherwise) on the part of such party, has been duly executed and delivered by
such party and constitutes the valid and legally binding obligation of such
party, enforceable against such party in accordance with its terms and
conditions.
9. Books and Records. In
compliance with the requirements of Rule 3la-3 under the 1940 Act, the
Sub-Advisor hereby agrees that all records which it maintains for the Fund are
the property of the Trust and further agrees to surrender promptly to the Trust
any of such records upon the Trust’s request. The Sub-Advisor further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 3la-1 under the 1940 Act.
10. Expenses. During the
term of this Agreement, the Sub-Advisor will pay its own expenses incurred by it
in connection with its advisory activities under this Agreement. Nothing herein,
however, shall be deemed to require the Sub-Advisor to pay any expenses of the
Fund or the Advisor.
11. Compensation. In
consideration of the services rendered pursuant to this Agreement, the Advisor
will pay to the Sub-Advisor, as compensation for the services provided by the
Sub-Advisor under this Agreement, a monthly fee of 1.00% (on an annualized
basis) of the average net assets of the Separate Account, plus any leveraged
amount applied to the Separate Account by the Advisor. The Advisor shall pay the
Sub-Advisor as soon as practical after the last day of each calendar month, but
no later than 5 business days after the end of each month. In case of
termination or expiration of this Agreement during any calendar month, the fee
with respect to such month shall be reduced proportionately based upon the
number of calendar days during which it is in effect and the fee shall be
computed upon the average net assets of the Separate Account in accordance with
the prospectus.
12. Standard of Care; Limitation
of Liability; Limited Indemnity. The Sub-Advisor shall exercise due care
and diligence and use the same skill and care in providing its services
hereunder as it uses in providing services to other investment companies,
accounts and customers, but shall not be liable for any action taken or omitted
by the Sub-Advisor in the absence of bad faith, willful misconduct, gross
negligence or reckless disregard of its duties. The Advisor further agrees to
indemnify, defend and hold the Sub-Advisor, and its managers, officers,
directors, equityholders, employees and agents (“Related Persons”), harmless
from and against all losses, claims, damages, liabilities, costs and expenses
arising by reason of being or having been Sub-Advisor to the Advisor, or in
connection with the past or present performance of services to the Advisor in
accordance with this Agreement, except to the extent that the loss, claim,
damage, liability, cost or expense was caused by reason of willful misfeasance,
bad
faith,
gross negligence, or reckless disregard of the duties on the part of the
Sub-Advisor in the performance of its duties and obligations under this
Agreement. These losses, claims, damages, liabilities. costs and expenses
include, but are not limited to, amounts paid in satisfaction of judgments, in
compromise, or as fines or penalties, and counsel fees and expenses, incurred in
connection with the defense or disposition of any action, suit, investigation or
other proceeding, whether civil or criminal, before any judicial, arbitral,
administrative or legislative body, in which the indemnitee may be or may have
been involved as a party or otherwise, or with which such indemnitee may be or
may have been threatened, while in office or thereafter. Federal and various
state securities laws may afford the Advisor and/or the Fund certain rights and
remedies under certain circumstances, even in the absence of bad faith, willful
misconduct, gross negligence or reckless disregard by the Sub-Advisor or its
Related Persons, and nothing contained herein shall in any way constitute a
waiver or limitation of any such rights and remedies that the Advisor and/or the
Fund may have under any such federal or state securities laws.
13. Reference to the
Sub-Advisor. Neither the Advisor nor any affiliate or agent of it shall
make reference to this Agreement or use the name of the Sub-Advisor or any of
its affiliates except with respect to references in regulatory filings and
communications with shareholders concerning the - identity of and services
provided by the Sub-Advisor to the Fund, which references shall not differ in
substance from those typically included in a proxy statement or annual report of
the Fund, or the Fund’s current registration statement and any advertising or
promotional materials, provided such materials are NASD compliant, without the
prior approval of the Sub-Advisor.
14. Duration and
Termination. Unless sooner terminated, this Agreement shall be for an
initial period of one year, and thereafter shall continue automatically for
successive annual periods, provided such continuance is specifically approved at
least annually by the Fund’s Board of Trustees provided that its continuance
also is approved by a majority of the Fund’s Trustees who are not “interested
persons” (as defined in the 0000 Xxx) of any party to this Agreement, by vole
cast in person at a meeting called for the purpose of voting on such approval.
This Agreement is terminable at any time without penalty, on sixty (60) days’
notice, by the Fund’s Board of Trustees, by the Advisor or by the Sub-Advisor or
by vote of a majority of the outstanding voting securities of the Fund. This
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act). Termination or expiration of this Agreement, however
caused, shall be without prejudice to any compensation accrued to the date of
termination or expiration and Sections 3(d), 9, 10, 11, 12 and I3 shall survive
any termination or expiration.
15. Amendment of this
Agreement. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by the Board of Trustees of the Fund, including a majority of the
Trustees who are not interested persons of the Advisor or the Sub-Advisor, cast
in person at a meeting called for the purpose of voting on such
approval.
16. Notice. Any
notice, advice or report to be given pursuant to this Agreement shall be
delivered or mailed:
To the Sub-Advisor
at:
Seagate
Global Advisors, LLC
000 X.
Xxxxxxxx Xxxx., Xxxxx 0
Xxxxxxx
Xxxxx, XX 00000
Attn:
Xxxxxxxx Xxx
To the Advisor
at:
Alternative
Investment Partners, LLC
000
Xxxxxxxxxxx Xxxxxx, Xxxxx 000x
Xxxxx
Xxxxxx. XX 00000
To the Fund
at:
AIP
Alternative Strategies Funds
000
Xxxxxxxxxxx Xxxxxx, Xxxxx 000x
Xxxxx
Xxxxxx, XX 00000
with a copy
to:
Blank
Rome LLP
000
Xxxxxxxxxx Xxxxxx
Xxx Xxxx,
Xxx Xxxx 00000
Attention:
Xxxxxx X. Xxxxxx, Esq.
The
effective date of any notice shall be (i) the date such notice is sent if such
delivery is effected by hand or facsimile; (ii) one business day after the
date such notice is sent if such delivery is effected by national overnight
courier; or the fifth (5th)
Business Day after the date of the mailing thereof.
17. Proxy Voting. The
Sub-Advisor is authorized to vote proxies received on securities held in the
Fund. The Advisor and the Trust represent that proxy voting authority is not
expressly reserved to any other party under the documents governing the Funds.
All proxies will be voted in accordance with the Advisor’s written policy in
effect from time to time, receipt of which the Advisor and the Trust hereby
acknowledge the Advisor and the Trust shall instruct the Custodian to forward
promptly to the Sub-Advisor receipt of such communications and to follow the
Sub-Advisor’s instructions concerning the same. The Sub-Advisor shall not be
responsible for voting proxies not timely received by the
Sub-Advisor.
18. Legal Proceedings.
The Sub-Advisor will not advise or act for the Advisor of the Fund in any legal
proceedings, including bankruptcies or class actions, involving securities held
or previously held in the Fund or the issuers of these securities, without the
prior consent of the Advisor.
19. Force Majeure. In
addition, and without limiting any other provision of this Agreement, the
Sub-Advisor shall not be liable for (i) force majeure or other events beyond the
control of the Sub-Advisor, including without limitation any failure, default or
delay in performance resulting from computer or other electronic or mechanical
equipment failure, unauthorized access, theft, operator errors, government
restrictions, exchange or market rulings or suspension of trading, strikes,
failure of common carrier or utility systems, severe weather or breakdown in
communications not reasonably within the control of the Sub-Advisor or other
causes commonly known as “acts of god”, whether or not any such cause was
reasonably foreseeable, or (ii) general market conditions rather than a
violation of this Agreement by the Sub-Advisor.
20. Limits on
Obligations. Notwithstanding anything to the contrary in this Agreement,
in no event will the Sub-Advisor be obligated to effect any transaction or
instruction it believes (without verification or inquiry) would violate any law,
rule or regulation; the rules or regulations of any regulatory or
self-regulatory body; or the Sub-Advisor’s legal, regulatory, or operational
policies and procedures; provided, however, that the Sub-Advisor must provide
the Advisor written notice of its decision not to effect a transaction within
one business day of such decision.
21. Miscellaneous.
Neither the holders of Shares of the Fund nor the Trustees shall be personally
liable hereunder. 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 may be executed simultaneously 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.
22. Governing Law. This
Agreement constitutes the entire agreement of the parties, shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and shall be governed by New York law in a manner not in conflict
with the provisions of the 1940 Act.
23. 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.
IN WITNESS WHEREOF, each of
the parties hereto has caused this Agreement to be duly executed by its
authorized officer.
Seagate
Global Advisors, LLC
By: /s/ Xxxxxxxx X.
Xxx
Name: Xxxxxxxx
X. Xxx
Title: Chief
Operating Officer
AIP
Alternative Investment Partners, LLC
By: /s/ Xxx
Xxxxxxxxxx
Name: Xxx
Xxxxxxxxxx
Title: Chief
Executive Officer
By: /s/ Xxx
Xxxxxxxxxx
Name: Xxx
Xxxxxxxxxx
Title: President
