SUB-ADVISORY AGREEMENT
THIS
AGREEMENT
is made
and entered into as of this 28th
day of
April, 2006, by and among Alternative Investment Partners, LLC, a Delaware
limited liability company (the “Adviser”), Xxxxxxxx Asset Management, LLC, a
Delaware limited liability company (the “Sub-Adviser”), and the Underlying Funds
Trust, a Delaware statutory trust (the “Trust”) on behalf of its series,
Distressed Securities & Special Situations - 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-Adviser will indirectly serve
as
a sub-adviser 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
Adviser 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
Adviser 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
(as
such
term is defined below) to
be
advised by the Sub-Adviser; and
WHEREAS,
the
Adviser and the Trust desire to retain the Sub-Adviser to assist the Adviser
in
providing a continuous investment program for one of the separate accounts
of
the Fund’s portfolio (the “Separate Account”) and the Sub-Adviser is willing to
do so; and
WHEREAS,
the
Board of Trustees of the Fund has approved this Agreement, and the Sub-Adviser
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
Adviser and the Trust hereby appoint the Sub-Adviser to serve as sub-adviser
to
the Adviser with respect to the Separate Account. Intending to be legally bound,
the Sub-Adviser 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 Adviser, the
Sub-Adviser will assist the Adviser 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-Adviser will provide services under this Agreement
in
accordance with the Fund’s investment objective, policies and restrictions as
stated in the Fund’s
prospectus
a copy of which has been provided to the Sub-Adviser prior to the date of this
Agreement (collectively with any amendments thereto provided to the Sub-Adviser,
the “Prospectus”),
and
resolutions of the
Trust’s
Board of Trustees applicable to the Fund.
Without
limiting the generality of the foregoing, the Sub-Adviser 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 Adviser 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 Adviser 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 Adviser
as
mutually agreed
to
by the
parties;
and
(f) will
maintain books and records with respect to the securities transactions for
the
Separate Account, furnish to the Adviser 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 Adviser 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-Adviser.
The
Sub-Adviser agrees with respect to the services provided to the Fund
through
the Separate Account that
it:
(a) its
retention as a Sub-Adviser, with respect to the investment of a portion of
the
properties held by the Fund, as determined by the Adviser, is authorized by
its
governing documents, and the terms of this Agreement do not violate any
obligation by which the Sub-Adviser is bound, whether arising by contract,
operation of law or otherwise;
(b) will
maintain its status as a
registered
investment adviser
with the
Securities and Exchange Commission;
(c) will
conform with all
rules
and
regulations
of the
Securities and Exchange Commission;
(d) will
telecopy trade information regarding
the Separate Account to
the
Fund’s designated Fund accountant
no later
than the first 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-Adviser 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 Adviser’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 Advisers Act
of 1940,
as amended.
The
Sub-Adviser will provide either the manual or a summary thereof, including
and
updates
thereto, to the Adviser’s Compliance Officer.
4. Covenants
by the Adviser and the Trust.
The
Adviser and the Trust agree with respect to the services provided to the
Fund:
(a) that
the
retention of the Sub-Adviser as investment adviser with respect to the
investment of a portion of the properties held by the Fund, as determined by
the
Adviser, 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-Adviser may use the Fund’s name on a representative client
list.
5. Services
Not Exclusive.
The
services furnished by the Sub-Adviser hereunder are deemed not to be exclusive,
and nothing in this Agreement shall (i) prevent the Sub-Adviser or any
affiliated person (as defined in the 0000 Xxx) of the Sub-Adviser or any
employee, agent,
member,
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-Adviser or any such employee, agent, member,
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-Adviser 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-Adviser
independently from those for any other investment companies and accounts advised
or managed by the Sub-Adviser. 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-Adviser believes to be 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-Adviser 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-Adviser 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-Adviser 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-Adviser shall use its reasonable best
efforts to seek the most favorable execution of orders, after taking into
account all factors the Sub-Adviser 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-Adviser 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,
as
amended)
to or
for the benefit of the Separate Account and/or other accounts over which the
Sub-Adviser or any of its affiliates exercises investment discretion. With
respect to the Separate Account, such brokerage and research services shall
be
consistent with the policies and procedures previously provided to the
Sub-Adviser, which may be revised by the Adviser, in its discretion, with 30
days prior notice to the Sub-Adviser. The Sub-Adviser 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-Adviser 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-Adviser’s overall
responsibilities to the Fund. In no instance will portfolio securities be
purchased from or sold to the Adviser or the Sub-Adviser or any affiliated
person of either thereof; except as permitted by Rules and Regulations of the
Securities and Exchange Commission.
7. Covenants
of the Adviser.
The
Adviser agrees with respect to the services provided to the Adviser hereunder
that the Adviser 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 31a-3 under the 1940 Act, the
Sub-Adviser 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-Adviser further agrees to
preserve for the periods prescribed by Rule 3la-2 under the 1940 Act the records
required to be maintained by Rule 3 la-I under the 1940 Act.
10. Expenses.
During
the term of this Agreement, the Sub-Adviser will pay its own expenses incurred
by it in connection with its advisory activities under this Agreement, with
the
exception of third party legal research expenses, which have been allocated
to
the Separate Account in an equitable manner, in connection with certain
investments by the Sub-Adviser. Nothing herein, however, shall be deemed to
require the Sub-Adviser to pay any expenses of the Fund or the Adviser.
11. Compensation.
In
consideration of the services rendered pursuant to this Agreement, the Adviser
will pay to the Sub-Adviser
a
monthly fee of 1.00% (on an annualized basis) of the average net assets of
the
Separate Account
calculated as of the last day of each month,
plus
any leveraged amount applied to the Separate Account by the Adviser. The Adviser
shall pay the Sub-Adviser 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.
In the
interest
of fairness, all compensation referenced in this paragraph to be paid to the
Sub-Adviser shall be adjusted upward to be at least equal to the highest
compensation paid to any other Sub-Adviser who manages assets for the Trust
(the
“Most Favored Nation Status”). This Most Favored Nation Status will also apply
within any other series of the AIP Funds that may be created in the future,
relative to the assets the Sub-Adviser may manage for that series, and the
highest compensation paid to any other Sub-Adviser managing assets for that
series.
12. Standard
of Care: Limitation of Liability: Limited Indemnity.
The
Sub-Adviser 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-Adviser in the absence of bad faith,
willful misconduct, gross negligence or reckless disregard of its duties. The
Adviser further agrees to indemnify, defend and hold the Sub-Adviser, and its
managers,
members,
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-Adviser to the Adviser,
or in connection with the past or present performance of services to the Adviser
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-Adviser 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 Adviser 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-Adviser 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 Adviser and/or
the
Fund may have under any such federal or state securities laws.
13. Reference
to the Sub-Adviser.
Neither
the Adviser nor any affiliate or agent of it shall make reference to this
Agreement or use the name of the Sub-Adviser 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-Adviser
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-Adviser.
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 vote 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 Adviser or by the Sub-Adviser 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 13 shall survive any termination
or expiration.
15. Nonsolicitation.
The Fund
and Adviser each agrees that, for the term of this Agreement and for 3 years
thereafter, neither the Fund nor the Adviser shall directly or indirectly
contact, induce, entice, or solicit any employee of the Sub-Adviser or any
of
its affiliated companies to leave his or her employment.
16. 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 in
writing by the Sub-Adviser and approved by
the
Board of Trustees of the Fund, including a majority of the Trustees who are
not
interested persons of the Adviser or the Sub-Adviser, cast in person at a
meeting called for the purpose of voting on such approval.
17. Notice.
Any
notice,
advice or report to be given pursuant to this Agreement shall be delivered
or
mailed:
To
the
Sub-Adviser at:
Xxxxxxxx
Asset Management, LLC
0000
Xxxxxxxxxxx Xxxxxx
Xxxxxxxx,
XX 00000
Attn:
Xxxxxx X. Xxxxxxxx
with
a
copy to:
Sadis
& Xxxxxxxx LLC
000
Xxxxx
Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attn:
Xxx
X. Xxxxxxx, Esq.
To
the
Adviser 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.
18. Proxy
Voting.
The
Sub-Adviser is authorized to vote proxies received on securities held in the
Fund. The Adviser 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 Adviser’s written policy in
effect from time to time, receipt of which the Adviser and the Trust hereby
acknowledge the Adviser and the Trust shall instruct the Custodian to forward
promptly to the Sub-Adviser receipt of such communications and to follow the
Sub-Adviser’s instructions concerning the same. The Sub-Adviser shall not be
responsible for voting proxies not timely received by the
Sub-Adviser.
19. Force
Majeure.
In
addition, and without limiting any other provision of this Agreement, the
Sub-Adviser shall not be liable for (i) force majeure or other events beyond
the
control of the Sub-Adviser, 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-Adviser 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-Adviser.
20. Limits
on Obligations.
Notwithstanding anything to the contrary in this Agreement, in no event will
the
Sub-Adviser 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-Adviser’s legal, regulatory, or operational policies and procedures;
provided, however, that the Sub-Adviser must provide the Adviser 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.
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.
Xxxxxxxx
Asset Management, LLC
By:
/s/Xxxxxx Xxxxxxxx
Name:
Xxxxxx
X. Xxxxxxxx
Title:
Managing
Member
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
