FocusShares Trust INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT (“Agreement”) is made this 16th day of November, 2007 by
and between FocusShares Trust, a statutory trust organized and existing under the laws of the state
of Delaware (the “Trust”), and FocusShares, LLC (the “Advisor”), a limited liability company
organized and existing under the laws of the state of Delaware.
RECITALS
1. The Trust is a series-type, open-end management investment company registered under the
Investment Company Act of 1940, as amended (the “1940 Act”);
2. The Trust is authorized to issue shares of beneficial interest in separate series with each such
series representing interests in a separate portfolio of securities and other assets;
3. The Trust intends initially to offer shares representing interests in each of the separate
series listed on Appendix A attached hereto (each, an “Initial Fund” and, collectively, the
“Initial Funds”);
4. The Trust desires to appoint the Advisor to serve as the investment adviser with respect to each
of the Initial Funds;
5. The Trust may, from time to time, offer shares representing interests in one or more additional
series (each, an “Additional Fund” and, collectively, the “Additional Funds”); and
6. The Trust may desire to appoint the Advisor as the investment adviser with respect to one or
more of the “Additional Funds” (each such Additional Fund and Initial Funds being referred to
herein individually as a “Fund” and, collectively, as the “Funds”);
NOW, THEREFORE, in consideration of the promises and the covenants herein, the Trust and the
Advisor agree as follows:
ARTICLE I
Duties of the Advisor
The Trust hereby appoints the Advisor to act as investment adviser to provide directly, or to
arrange through third parties, investment advisory services to it and to each Initial Fund, for the
period and on the terms and conditions set forth in this Agreement. The Advisor hereby accepts
such engagement and agrees during such period, at its own expense, to provide or to arrange to
provide such investment advisory services, and to assume the obligations set forth in this
Agreement for the compensation provided for herein. In the event that the Trust desires to retain
the Advisor to render investment advisory services hereunder with respect to an Additional Fund,
and the Advisor is willing to render such services, Appendix A shall be amended in accordance with
Article VIII whereupon such Additional Fund shall become a Fund hereunder.
The Advisor, its affiliates and any investment adviser(s), investment sub-adviser(s) or other
parties performing services for the Advisor shall, for all purposes herein, be independent
contractors and shall, except as otherwise expressly provided or authorized, have no authority to
act for or represent the Trust or a Fund in any way or otherwise be deemed agents of the Trust or a
Fund.
The Trust acknowledges and agrees that it is contemplated that the Advisor will manage the
investment operations and composition of each Fund of the Trust and render investment advice for
each Fund. The Advisor may, at its own expense, select and contract with one or more investment
sub-advisers to manage the investment operations and composition of each Fund of the Trust and
render investment advice for each Fund. The services provided by the Advisor or any such
sub-adviser shall include: (i) furnishing continuously an investment program for each Fund; (ii)
managing the investment and reinvestment of Fund assets; (iii) determining which investments shall
be purchased, held, sold or exchanged for each Fund and what portion, if any, of the assets of each
Fund shall be held uninvested; (iv) making changes on behalf of the Trust in the investments for
each Fund; (v) providing the Trust with records concerning the activities for which the Trust is
required to maintain records; and (vi) rendering reports to the officers and Board of Trustees of
the Trust (the “Board”) concerning the Advisor’s discharge of the foregoing responsibilities. In
addition, the Advisor will arrange for other necessary services, including distribution, custodial,
transfer agency and administration. The
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Advisor shall furnish to the Trust all office facilities, equipment, services and executive
and administrative personnel necessary for managing the investment program of the Trust for each
Fund. The Advisor may enter into arrangements with other persons affiliated or unaffiliated with
the Advisor for the provision of certain personnel and facilities to the Advisor to enable the
Advisor to fulfill its duties and obligations under this Agreement.
The Advisor and any other party performing services covered by this Agreement shall be subject
to: (1) the supervision and control of the Board and such policies as the Board may from time to
time establish; (2) the restrictions of the Trust’s Declaration of Trust as amended from time to
time; (3) the statements relating to each Fund’s investment objectives, investment strategies and
investment restrictions as set forth in the currently effective (and as amended or supplemented
from time to time) registration statement on Form N-1A of the Trust (the “registration statement”)
under the Securities Act of 1933, as amended; (4) the Trust’s compliance manual; and (5) applicable
laws and regulations, including the 1940 Act, the Investment Advisers Act of 1940, as amended (the
“Advisers Act”) and any applicable provisions of the Internal Revenue Code of 1986, as amended (the
“Code”).
Any records required to be maintained and preserved pursuant to the provisions of Rule 31a-1
and Rule 31a-2 under the 1940 Act that are prepared or maintained by the Advisor (or any investment
sub-adviser) on behalf of the Trust are the property of the Trust and will be surrendered promptly
to the Trust at its request (the “Records”). The Advisor agrees to preserve the Records for the
periods prescribed in Rule 31a-2 under the 1940 Act. The Trust and the Advisor agree to furnish to
each other, if applicable, current prospectuses, proxy statements, reports to shareholders,
certified copies of their financial statements, and such other information with regard to their
affairs as each may reasonably request. The Advisor shall keep confidential any information
obtained in connection with its duties hereunder and disclose such information only if the Trust
has authorized such disclosure or if such disclosure is expressly required or lawfully requested by
applicable federal or state regulatory authorities.
In connection with the management of the investment and reinvestment of Fund assets pursuant
to this Agreement, the Advisor, acting by its own officers, directors or employees, is authorized
to select the brokers or dealers (including brokers and dealers that are affiliated with the
Advisor or the Trust’s principal underwriter) that will execute purchase and sale transactions
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for the Trust. In executing portfolio transactions and selecting brokers or dealers, if any,
the Advisor will use its best efforts to seek on behalf of a Fund the best overall terms available,
as described, from time to time, in the Trust’s Registration Statement. In assessing the best
overall terms available for any transaction, the Advisor shall consider all factors it deems
relevant, including the breadth of the market in and the price of the security, the financial
condition and execution capability of the broker or dealer, and the reasonableness of the
commission, if any (for the specific transaction and on a continuing basis). In evaluating the
best overall terms available, and in selecting the broker or dealer, if any, to execute a
particular transaction, the Advisor may also consider the brokerage and research services (as those
terms are defined in Section 28(e) of the 0000 Xxx) provided to any Fund of the Trust. The Advisor
may pay to a broker or dealer who provides such brokerage and research services a commission for
executing a brokerage transaction that is in excess of the amount of commission another broker or
dealer would have charged for effecting the transaction if, but only if, the Advisor determines in
good faith that such commission was reasonable in relation to the value of the brokerage and
research services provided. The Trust acknowledges that any such research may be useful to the
Advisor in connection with other accounts managed by it. Brokerage transactions for the Trust may
be effected through affiliates of the Advisor if approved by the Board, subject to applicable rules
and regulations. The Advisor will promptly communicate to the officers of the Trust and the Board
such information relating to Fund transactions as they may reasonably request.
ARTICLE II
The Advisor
The Advisor shall submit to all regulatory and administrative bodies having jurisdiction over
the services provided pursuant to this Agreement any information, reports or other material which
any such body by reason of this Agreement may request or require pursuant to applicable laws and
regulations.
The Advisor will promptly notify the Trust in writing of the occurrence of any of the
following events:
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(a) the Advisor fails to be registered as an investment adviser under the Advisers Act or
under the laws of any jurisdiction in which the Advisor is required to be registered as an
investment adviser in order to perform its obligations under this Agreement;
(b) the Advisor 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 Trust; and
(c) the chief executive officer or principal owners of the Advisor or the portfolio manager
of any Fund changes.
ARTICLE III
Allocation of Charges and Expenses
(a) The Advisor. The Advisor assumes the expense of and shall pay for maintaining the staff
and personnel necessary to perform its obligations under this Agreement, including the fees and
expenses of any sub-adviser retained by the Advisor, and shall, at its own expense, provide the
office space, equipment and facilities for such personnel, and shall pay all compensation of
officers and trustees of the Trust who are affiliated persons of the Advisor.
(b) Trust Expenses. The Advisor agrees to pay all expenses of the Trust, except for: (i)
brokerage expenses and other expenses (such as stamp taxes) connected with the execution of
portfolio transactions or in connection with creation and redemption transactions; (ii) interest
and tax expenses; (iii) dividend or distribution expenses; (iv) legal fees or expenses in
connection with any arbitration, litigation or pending or threatened arbitration or litigation,
including any settlements or indemnification in connection therewith; (v) compensation and expenses
of the trustees of the Trust who are not officers, managers, directors, trustees, partners or
employees of the Advisor or its affiliates (the “Independent Trustees”); (vi) compensation and
expenses of counsel to the Independent Trustees, (vii) compensation and expenses of, or fees and
expenses relating to the provision of services of, the Trust’s chief compliance officer and the
Trust’s principal financial officer, (viii) distribution fees and expenses, if any, paid by the
Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act; (ix)
extraordinary expenses, as determined under generally accepted accounting principles; and (x) the
Fee payable to the Advisor under Article IV. The payment or assumption by the Advisor of any
expense of
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the Trust that the Advisor is not required by this Agreement to pay or assume shall not
obligate the Advisor to pay or assume the same or any similar expense of the Trust on any
subsequent occasion.
ARTICLE IV
Compensation of the Advisor
For the services rendered, the facilities furnished and expenses assumed by the Advisor with
respect to each Fund, the Trust shall pay to the Advisor at the end of each calendar month a fee
for each Fund calculated as a percentage of the average daily net assets of the Fund at the annual
rates set forth in Appendix A of this Agreement. The Advisor’s fee is accrued daily at
1/365th of the applicable annual rate set forth in Appendix A. For the purpose of the
fee accrual, the daily net assets of each Fund are determined in the manner and at the times set
forth in the Trust’s current prospectus and, on days on which the net assets are not so determined,
the net asset value computation to be used shall be as determined on the immediately preceding day
on which the net assets were determined. Appendix A shall be amended from time to time to reflect
the addition and/or termination of any Fund as a Fund hereunder and to reflect any change in the
advisory fees payable with respect to any Fund duly approved in accordance with Article VIII
hereunder.
In any case of commencement or termination of this Agreement with respect to any Fund during
any calendar month, the fee with respect to such Fund for that 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 daily net assets of such Fund for the days during which it is in
effect.
In the event of termination of this Agreement, all compensation due through the date of
termination will be calculated on a pro-rated basis through the date of termination and paid within
fifteen business days of the date of termination.
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ARTICLE V
Limitation of Liability of the Advisor
Neither the Advisor nor its officers, directors, employees, agents, affiliated persons or
controlling persons or assigns shall be liable for any error of judgment or mistake of law or for
any loss suffered by the Trust or its shareholders in connection with the matters to which this
Agreement relates; provided that no provision of this Agreement shall be deemed to protect the
Advisor against any liability to the Trust or its shareholders resulting from any willful
misfeasance, bad faith or gross negligence in the performance of its duties or obligations
hereunder, the reckless disregard of its duties or obligations hereunder, or breach of its
fiduciary duty to the Trust, any Fund or its shareholders.
ARTICLE VI
Activities of the Advisor
The Advisor’s services under this Agreement are not exclusive. The Advisor may provide the
same or similar services to other clients and is not required to give priority to one or more of
the Fund over its other client accounts or portfolios.
It is understood that trustees, officers, employees and shareholders of the Trust are or may
become interested persons of the Advisor, as trustees, officers, employees and shareholders or
otherwise, and that trustees, officers, employees and shareholders of the Advisor are or may become
similarly interested persons of the Trust, and that the Advisor may become interested in the Trust
as a shareholder or otherwise.
ARTICLE VII
Limitation of Liability Under the Declaration of Trust; Force Majeure
(a) The Declaration of Trust establishing the Trust provides that no trustee, shareholder,
officer, employee or agent of the Trust shall be subject to any personal liability in connection
with Trust property or the affairs of the Trust and that all persons should shall look solely to
the Trust property or to the property of one or more specific Funds for satisfaction of claims of
any nature arising in connection with the affairs of the Trust.
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(b) Notwithstanding any other provision of this Agreement, the Advisor shall not be liable
for any loss suffered by the Trust or its shareholders caused directly or indirectly by
circumstances beyond the Advisor’s reasonable control including, without limitation, government
restrictions, exchange or market rulings, suspensions of trading, acts of civil or military
authority, national emergencies, labor difficulties, fires, earthquakes, floods or other
catastrophes, acts of God, wars, riots or failures of communication or power supply. In the event
of equipment breakdowns beyond its reasonable control, the Advisor shall take reasonable steps to
minimize service interruptions, but shall have no liability with respect thereto.
ARTICLE VIII
Effectiveness, Duration and Termination of this Agreement
This Agreement shall not become effective unless and until it is approved by the vote of a
majority of the Board, including a majority of trustees who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for the purpose of voting
on such approval, and, to the extent required by the 1940 Act, by the vote of a majority of the
outstanding voting shares of each Fund. This Agreement shall become effective as to the Initial
Funds on the date hereof. This Agreement may be extended to cover any Additional Fund of the Trust
that may be created in the future. This Agreement shall become effective as to each such
Additional Fund when an amendment to Appendix A reflecting the addition of such Additional Fund is
approved by the vote of a majority of the Board, including a majority of trustees who are not
parties to this Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval, and, to the extent required by the 1940 Act, by
the vote of a majority of the outstanding voting shares of such Additional Fund. As to each Fund
of the Trust, the Agreement shall continue in effect for two years from the date hereof with
respect to each Initial Fund and, with respect to each Additional Fund, for two years from the date
on which such Fund becomes a Fund hereunder, and shall thereafter continue in effect from year to
year so long as such continuance is specifically approved for each Fund at least annually (as
construed consistent with the 1940 Act and the rules and regulations thereunder) by: (a) the vote
of a majority of the Board, or by the vote of a majority of outstanding voting shares attributable
to the shares of the Fund; and (b) a vote of a majority of those trustees who are not parties to
this Agreement or interested persons of any such party cast in person at a meeting called for the
purpose of voting on such approval. If the shareholders of any Fund fail to
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approve the Agreement of any continuance of the Agreement as provided herein, the Advisor may
continue to serve hereunder in the manner and to the extent permitted by the 1940 Act and rules and
regulations thereunder.
This Agreement may be terminated at any time as to any Fund or to all Funds, without the
payment of any penalty, by the Board, or by vote of a majority of the outstanding votes
attributable to the shares of the applicable Fund, or by the Advisor, on not less than 30 days’ nor
more than 60 days’ written notice to the other party; provided, that a shorter notice period shall
be permitted for a Fund in the event its shares are no longer listed on a national securities
exchange. If this Agreement is terminated only with respect to one or more, but less than all, of
the Funds, or if a different investment manager is appointed with respect to an Additional Fund,
the Agreement shall remain in effect with respect to the remaining Funds. This Agreement shall
automatically terminate in the event of its assignment.
Any approval, amendment or termination of this Agreement with respect to a Fund will not
require the approval of a majority of the outstanding voting securities of any other Fund or the
approval of a majority of the outstanding voting securities of the Trust, unless such approval is
required by applicable law.
ARTICLE IX
Amendments of this Agreement
Any amendment to this Agreement that is material shall become effective with respect to a Fund
only upon approval of the Advisor, the Board (including the approval by the vote of a majority of
those trustees who are not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval) and, if required under
the 1940 Act, a majority of the outstanding voting shares of the Fund.
ARTICLE X
Definitions of Certain Terms
The terms “assignment,” “affiliated person,” and “interested person,” when used in this
Agreement, shall have the respective meanings specified in the 1940 Act. The term “majority of the
outstanding voting shares” attributable to the shares of a Fund means the lesser of (1) 67% or
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more of the votes attributable to such Fund present at a meeting if the holders of more than
50% of such votes are present or represented by proxy, or (2) more than 50% of the votes
attributable to shares of the Fund.
ARTICLE XI
Governing Law
This Agreement shall be construed in accordance with laws of the State of Delaware, and
applicable provisions of the Advisers Act and 1940 Act. To the extent that the applicable laws of
the State of Delaware, or any of the provisions herein, conflict with the applicable provisions of
the 1940 Act, the latter shall control.
ARTICLE XII
Severability
If any provision of this Agreement shall be held or made invalid by a court decision, statute,
rule or otherwise, the remainder of this Agreement shall not be affected thereby.
ARTICLE XIII
Survival After Termination
The rights and obligations set forth in Articles V and VII shall survive the termination of
this Agreement.
ARTICLE XIV
Miscellaneous
(a) Notice. All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust or the Advisor in person or by
registered mail or a private mail or delivery service providing the sender with notice of receipt.
Notice shall be deemed given on the date delivered or mailed in accordance with this section. A
copy of any notice given to the Trust shall be delivered to: Xxxxx X. Xxxx, Xxxxxx Xxxxxx Xxxxxxxx
LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000.
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(b) Execution By Counterpart. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one agreement.
(c) Entire Agreement. This Agreement contains the entire understanding and
agreement of the parties.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the
date first above written.
| FocusShares Trust | ||
| /s/ Xxxxxxx Xxxxxxx | ||
| By: Xxxxxxx Xxxxxxx | ||
| Title: President | ||
ATTEST: |
||
| FocusShares, LLC | ||
| /s/ Xxxx Xxxx | ||
| By: Xxxx Xxxx | ||
| Title: CEO and President | ||
ATTEST: |
||
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Appendix A
| Name of Fund | Management Fee Rate | |
FocusShares ISE Homebuilders Index
|
0.65% bps | |
FocusShares ISE SINdex
|
0.65% bps | |
FocusShares ISE-CCM Homeland Security Index
|
0.65% bps | |
FocusShares ISE-REVERE Wal-Mart Suppliers Index
|
0.65% bps |
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