SUBADVISORY AGREEMENT
Agreement effective as of the 10th day of July, 2004, by and between
American Express Financial Corporation, a Delaware corporation ("AEFC"), and
Threadneedle International Limited, a company organized under the laws of
England and Wales ("TINTL").
WHEREAS each of the funds listed in Schedule A (each, a "Fund", and
collectively the "Funds") is a series of an investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act").
WHEREAS AEFC has entered into an Investment Management Services
Agreement dated February 11, 1999, as amended June 26, 2000 (the "Advisory
Agreement") with the Funds pursuant to which AEFC provides investment advisory
services to all the Funds.
WHEREAS AEFC and the Funds desire to retain TINTL to provide investment
advisory services to the Funds, and TINTL is willing to render such investment
advisory services.
NOW, THEREFORE, the parties, intending to be legally bound, agree as follows:
1. TINTL's Duties.
(a) Portfolio Management. Subject to supervision by AEFC and the Funds'
Boards of Directors (the "Board"), TINTL shall manage the composition
of that portion of assets of the Funds which is allocated to TINTL
from time to time by AEFC (which portion may include any or all of the
Funds' assets), including the purchase, retention, and disposition
thereof, in accordance with the Funds' investment objectives,
policies, and restrictions, and subject to the following
understandings:
(i) Investment Decisions. TINTL shall determine from time to time
what investments and securities will be purchased, retained, or
sold with respect to that portion of the Funds allocated to it by
AEFC, and what portion of such assets will be invested or held
uninvested as cash. TINTL is prohibited from consulting with
other subadvisers, if any, of the Funds concerning transactions
of the Funds in securities or other assets, other than for
purposes of complying with the conditions of Rule 12d3-1(a) or
(b) under the 1940 Act.
(ii) Investment Limits and Requirements. In the performance of its
duties and obligations under this Agreement, TINTL shall act in
conformity with applicable limits and requirements, as amended
from time to time, as set forth in (A) each Fund's Prospectus and
Statement of Additional Information ("SAI"); (B) instructions and
directions of AEFC and of the Boards; (C) requirements of the
1940 Act, the Internal Revenue Code of 1986, as amended, as
applicable to the Funds, and all other applicable U.S.
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federal and state laws and regulations; and (D) the procedures
and standards set forth in, or established in accordance with,
the Advisory Agreement.
(iii) Portfolio Transactions.
(A) Trading. With respect to the securities and other
investments to be purchased or sold for the Funds, TINTL
shall place orders with or through such persons, brokers,
dealers, or futures commission merchants (including, but not
limited to, broker-dealers that are affiliated with AEFC or
TINTL) selected by TINTL; provided, however, that such
orders shall be consistent with the brokerage policy set
forth in each Fund's Prospectus and SAI, or approved by the
Boards; conform with U.S. federal securities laws; and be
consistent with securing the most favorable price (including
reducing brokerage commissions where possible) and efficient
execution. Within the framework of this policy, TINTL may
consider the research, investment information, and other
services provided by, and the financial responsibility of,
brokers, dealers, or futures commission merchants who may
effect, or be a party to, any such transaction or other
transactions to which TINTL's other clients may be a party.
(B) Aggregation of Trades. On occasions when TINTL deems the
purchase or sale of a security or futures contract to be in
the best interest of one or more Funds as well as other
clients of TINTL, TINTL, to the extent permitted by
applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities or futures contracts
to be sold or purchased with those of its other clients
and/or clients of its affiliated companies. In such event,
allocation of the securities or futures contracts so
purchased or sold, as well as the expenses incurred in the
transaction, will be made by TINTL in the manner TINTL
considers to be the most equitable and consistent with its
fiduciary obligations to the Funds and to such other
clients. AEFC acknowledges that in some circumstances the
aggregation of trades may operate to the advantage or
disadvantage of the Funds.
(iv) Records and Reports. TINTL shall maintain such books and records
required under the 1940 Act as shall be agreed upon from time to
time by the parties hereto in writing, shall render to the Boards
such periodic and special reports as the Boards or AEFC may
reasonably request, and shall meet with any persons at the
request of AEFC or the Boards for the purpose of reviewing
TINTL's performance under this Agreement at reasonable times and
upon reasonable advance written notice.
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(v) Transaction Reports. TINTL shall provide the Funds' custodian on
each business day with information relating to all transactions
concerning the Funds' assets and shall provide AEFC with such
information upon AEFC's request.
(b) Maintenance of Records. TINTL shall timely furnish to AEFC all
information relating to TINTL's services hereunder that are needed by
AEFC to maintain the books and records of the Funds required under the
1940 Act. Such request shall specify which documents are required by
AEFC for this purpose. TINTL shall maintain for the Funds the records
required by paragraphs (b)(5), (b)(6), (b)(7), (b)(9), (b)(10) and (f)
of Rule 31a-1 under the 1940 Act and any additional records as agreed
upon by TINTL and AEFC. TINTL agrees that all records that it
maintains for the Funds are the property of the Funds and TINTL will
surrender promptly to the Funds any of such records upon any Fund's
request; provided, however, that TINTL may retain a copy of such
records. TINTL further agrees to preserve for the periods prescribed
under the 1940 Act any such records as are required to be maintained
by it pursuant to paragraph 1(a) hereof.
(c) Fidelity Bond. TINTL will provide the Funds with reasonable evidence
that, with respect to its activities on behalf of the Funds, TINTL is
maintaining adequate fidelity bond insurance.
(d) Non-Public Information. TINTL will protect the confidentiality of any
non-public information provided to it by AEFC or any of the Funds and
will comply with AEFC's policy concerning the disclosure of portfolio
holdings information.
2. AEFC's Duties. AEFC shall continue to have responsibility for all other
services to be provided to the Funds pursuant to the Advisory Agreement and
shall oversee and review TINTL's performance of its duties under this
Agreement. For the avoidance of doubt TINTL shall have no responsibility
for any non-core investment advisory activities including, without
limitation, pricing, fund accounting services, or the offer or sale,
redemption or exchange of shares in the Funds. AEFC shall also retain
direct portfolio management responsibility with respect to any assets of
the Funds which are not allocated by it to the portfolio management of
TINTL as provided in paragraph 1(a) hereof. AEFC will inform TINTL of any
restrictions regarding markets in which transactions for the Funds may be
effected.
3. Valuation. A statement showing the Initial Value of the Funds will be
supplied to AEFC as soon as reasonably practicable after the execution of
this Agreement unless the parties otherwise agree. "Initial Value" means
the value of the assets (collectively and individually) comprising the
Funds at the time when TINTL first assumes management of the Funds.
4. Documents Provided to TINTL. AEFC has delivered or will deliver to TINTL
current copies and supplements thereto of each of the Prospectuses and SAIs
pertaining to the Funds. AEFC will provide to TINTL for review drafts of
all future amendments and
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supplements that may affect the performance of TINTL's duties under this
Agreement, and will promptly deliver to TINTL final copies of all future
amendments and supplements.
5. Compensation of TINTL. For the services provided and the expenses assumed
pursuant to this Agreement, AEFC will pay to TINTL, effective from the date
of this Agreement, a fee which shall be accrued daily and paid monthly, on
or before the last business day of the next succeeding calendar month, from
each Fund's assets at the annual rates as a percentage of each Fund's
average daily net assets set forth in the attached Schedule A, which
Schedule can be modified by written agreement of AEFC and TINTL from time
to time to reflect changes in annual rates, subject to appropriate
approvals required by the 1940 Act, if any. The rates set forth in Schedule
A are subject to adjustment based on the performance of each Fund as
provided therein. If this Agreement becomes effective or terminates before
the end of any month, the fee for the period from the effective date to the
end of the month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the
proportion that such month bears to the full month in which such
effectiveness or termination occurs.
6. Liability of TINTL. TINTL agrees to perform faithfully the services
required to be rendered to the Funds under this Agreement, but nothing
herein contained shall make TINTL or any of its officers, partners, or
employees liable for any loss sustained by the Funds or its officers,
directors, or shareholders, or any other person on account of the services
which TINTL may render or fail to render under this Agreement; provided,
however, that nothing herein shall protect TINTL against liability to the
Funds or to any of its shareholders, to which TINTL would otherwise be
subject, by reason of its willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement. Nothing in
this Agreement shall protect TINTL from any liabilities which it may have
under the 1933 Act or the 1940 Act.
7. Delegation. TINTL may delegate any of its functions under this Agreement to
an affiliate on prior written notice to AEFC. Upon any such delegation
TINTL will remain liable for the acts and omissions of the delegate.
8. Representations of TINTL Under U.S. Law. TINTL represents and warrants as
follows:
(a) TINTL (i) is registered as an investment advisor under the Advisers
Act of 1940 (the "Advisers Act") and will continue to be so registered
for so long as this Agreement remains in effect; (ii) is not
prohibited by the 1940 Act or the Advisers Act from performing the
services contemplated by this Agreement, (iii) has met and will seek
to continue to meet for so long as this Agreement remains in effect,
any other applicable U.S. federal or state requirements, or the
applicable requirements of any U.S. regulatory or industry
self-regulatory agency necessary to be met in order to perform the
services contemplated by this Agreement; (iv) has the authority to
enter into and perform the services contemplated by this Agreement;
and (v) will promptly notify AEFC of the occurrence of any event
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that would disqualify TINTL from serving as an investment advisor of
an investment company pursuant to Section 9(a) of the 1940 Act or
otherwise.
(b) TINTL has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and will provide AEFC
with a copy of the code of ethics, together with evidence of its
adoption. Within 45 days of the end of the last calendar quarter of
each year that this Agreement is in effect, a duly authorized officer
of TINTL shall certify to AEFC that TINTL has complied with the
requirements of Rule 17j-1 during the previous year and that there has
been no material violation of TINTL's code of ethics or, if such a
violation has occurred, that appropriate action was taken in response
to such violation. Upon the written request of AEFC, TINTL shall
permit AEFC, its employees, or its agents to examine the reports
required to be made to TINTL by Rule 17j-1(c)(1) and all other records
relevant to TINTL's code of ethics.
(c) TINTL has provided AEFC with a copy of its Form ADV, which as of the
date of this Agreement is its Form ADV as most recently filed with the
Securities and Exchange Commission ("SEC") and promptly will furnish a
copy of all amendments to AEFC at least annually.
(d) TINTL will promptly notify AEFC of any changes in the controlling
shareholder(s) or in the key personnel who are either the portfolio
manager(s) responsible for the Funds or senior management of TINTL, or
if there is otherwise an actual or expected change in control or
management of TINTL.
9. Representations of AEFC. AEFC represents and warrants as follows:
AEFC (i) is registered as an investment advisor under the Advisers Act and
will continue to be so registered for so long as this Agreement remains in
effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement, (iii) has met and
will seek to continue to meet for so long as this Agreement remains in
effect, any other applicable U.S. federal or state requirements, or the
applicable requirements of any U.S. regulatory or industry self-regulatory
agency necessary to be met in order to perform the services contemplated by
this Agreement; (iv) has the authority to enter into and perform the
services contemplated by this Agreement; and (v) will promptly notify TINTL
of the occurrence of any event that would disqualify AEFC from serving as
an investment advisor of an investment company pursuant to Section 9(a) of
the 1940 Act or otherwise.
10. Regulation and Customer Status Under UK Law; COB Rules.
(a) Pursuant to Rule 4.1.4R of the Conduct of Business Rules (the "COB
Rules") of the Financial Services Authority ("FSA"), TINTL hereby
classifies AEFC Market Counterparty (as defined in the Definitions
schedule to the FSA Handbook) in relation to the services to be
provided under this Agreement.
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(b) TINTL is authorized and regulated in the UK by the FSA, and nothing in
this Agreement shall exclude or restrict any duty or liability which
TINTL owes to AEFC arising under the Financial Services and Markets
Xxx 0000 ("FSMA") or any rules of the FSA, including the COB Rules.
(c) The statements, disclosures and other provisions required under the
COB Rules and set forth in Exhibit 1 and the TINTL Soft Commission
Policy 2003 set forth in Exhibit 2 shall be considered an integral
part of this agreement.
(d) The Boards of the Funds will exercise all voting rights conferred on
the owners of securities held by the Funds.
11. Potential Conflicts of Interest and Disclosures.
(a) TINTL and any Associate may effect transactions in which TINTL or
Associate has, directly or indirectly, a material interest or a
relationship of any description with another party, which may involve
a potential conflict with TINTL's duty to the Funds. As used in this
Agreement, "Associate" shall mean a company or other person connected
to TINTL, including TINTL's ultimate holding company and any company
which is at the relevant time a direct or indirect subsidiary of that
ultimate holding committee. Neither TINTL nor any Associate shall be
liable to account to the Funds for any profit, commission or
remuneration made or received from or by reason of such transactions
or any connected transactions nor will TINTL's fees, unless otherwise
provided, be abated by reason of any such profit, commission or
remuneration.
(b) TINTL will ensure that such transactions are effected on terms which
are not materially less favourable to the Funds than if the potential
conflict had not existed.
(c) In accordance with the FSA Rules, TINTL notifies AEFC that such
potential conflicting interests or duties may arise because:
(i) TINTL or an Associate undertakes Regulated Activities for other
customers:
(ii) a director or employee of TINTL, or of an Associate, is a
director of, holds or deals in Securities of, or is otherwise
interested in any company whose Securities are held or dealt in
on behalf of the Funds;
(iii)a transaction is effected in Securities issued by an Associate
or the customer of TINTL or an Associate;
(iv) a transaction is effected in Securities in respect of which TINTL
or an Associate may benefit from a commission, fee, xxxx-up or
xxxx-down
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payable otherwise than by the Funds, and/or TINTL or an
Associate may also be remunerated by the counterparty to any
such transaction;
(v) TINTL deals on behalf of the Funds with, or in the Securities
of, an Associate;
(vi) TINTL may act as agent for the Funds in relation to
transactions in which it is also acting as agent for
the account of other customers and/or Associates;
(vii) TINTL may, acting as principal, sell to or purchase
currency from the Funds and may deal in Securities as
principal with the Funds;
(viii) a transaction is effected in insurance policies,
units or shares of In-House Funds or Connected
Investment Trusts or of any company of which TINTL or
an Associate is the manager, operator, banker,
adviser, custodian or trustee;
(ix) TINTL may effect transactions involving placings
and/or new issues with an Associate who may be acting
as principal or receiving agent's commission;
(x) a transaction is effected in Securities of a company
for which TINTL or an Associate has underwritten, or
managed or arranged, an issue or offer for sale
within the previous 12 months;
(xi) TINTL or an Associate may receive remuneration or
other benefits by reason of acting in corporate
finance or similar transactions involving a company
whose Securities are held by the Funds; or
(xii) a transaction is effected in Securities in respect of
which TINTL or an Associate, or a director or
employee of TINTL or an Associate, is
contemporaneously trading or has traded on its own
account or has either a long or short position.
(d) TINTL will normally act as the agent of the Funds, who will therefore
be bound by its actions under the Agreement. Nevertheless, none of the
services to be provided hereunder nor any other matter shall give rise
to any fiduciary or equitable duties which would prevent or hinder
TINTL, or any Associate, in transactions with or for the Funds,
including programme trades, from acting as both market-maker and
broker, principal or agent, dealing with other Associates and other
customers, and generally effecting transactions as provided above,
except as otherwise provided by applicable U.S. law and regulations or
by policies adopted by the Funds.
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12. Duration and Termination.
(a) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for a period of more than two years from the date
written above only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the
1940 Act. Thereafter, if not terminated, this Agreement shall continue
automatically for successive periods of 12 months each, provided that
such continuance is specifically approved at least annually (i) by a
vote of a majority of the members of the Boards who are not parties to
this Agreement or interested persons (as defined in the 0000 Xxx) of
any such party, and (ii) by the Boards as a whole or by a vote of the
holders of a majority of the outstanding voting securities (as defined
in the 1940 Act) of the Fund.
(b) Notwithstanding the foregoing, this Agreement may be terminated at any
time, either in whole or in part, without the payment of any penalty,
by the Boards or by vote of a majority of the outstanding voting
securities (as defined in the 0000 Xxx) of the Fund on 60 days'
written notice to TINTL. This Agreement may also be terminated,
without the payment of any penalty, by AEFC upon 60 days' written
notice to TINTL. TINTL may terminate this Agreement at any time,
without payment of any penalty, on 60 days' written notice to AEFC.
This Agreement shall terminate automatically in the event that (i) it
is assigned (as defined in the 1940 Act), (ii) the Advisory Agreement
is terminated, (iii) either AEFC or TINTL ceases to be registered with
the SEC as an investment adviser, or (iv) a competent regulatory
authority orders termination.
13. TINTL's Services Are Not Exclusive. Nothing in this Agreement shall limit
or restrict the right of any of TINTL's partners, officers, or employees
who may also be a director, officer, or employee of any Fund to engage in
any other business or to devote his or her time and attention in part to
the management or other aspects of any business, whether of a similar or a
dissimilar nature, or limit or restrict TINTL's right to engage in any
other business or to render services of any kind to any other corporation,
firm, individual, or association.
14. Notices. Any notice under this Agreement must be given in writing as
provided below or to another address as either party may designate in
writing to the other.
TINTL: Company Secretary
Threadneedle International Limited
00 Xx Xxxx Xxx
Xxxxxx XX0X 0XX
Xxxxxx Xxxxxxx
Attn: Head of Legal
Fax: x00(0)00 0000 0000
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with a copy to:
Xxxx Xxxxxx
Legal Department
Threadneedle International Limited
00 Xx Xxxx Xxx
Xxxxxx XX0X 0XX
Xxxxxx Xxxxxxx
AEFC: Xxx X. Xxxxxxx
Vice President - AXP Funds Operations/Compliance
American Express Financial Corporation
435 AXP Financial Center
Xxxxxxxxxxx, XX 00000
Fax: 000-000-0000
with a copy to:
Xxxxxxxxxxx X. Xxxxxxxx
Counsel
American Express Financial Corporation
50606 AXP Financial Center
Xxxxxxxxxxx, XX 00000
Fax: 000-000-0000
15. Amendments. This Agreement may be amended by mutual consent, subject to
approval by the Boards and the Fund's shareholders to the extent
required by the 1940 Act.
16. Assignment. No assignment (as defined in the 0000 Xxx) shall be made by
TINTL without the prior written consent of the Funds and AEFC.
Notwithstanding the foregoing, no assignment shall be deemed to result
from any changes in the directors, officers, or employees of AEFC
except as may be provided to the contrary in the 1940 Act or the rules
and regulations thereunder.
17. Governing Law. This Agreement shall be governed by the laws of the
State of Minnesota, without giving effect to the conflicts of laws
principles thereof, or any applicable provisions of the 1940 Act. To
the extent that the laws of the State of Minnesota, or any of the
provision of this Agreement, conflict with applicable provisions of the
1940 Act, the latter shall control.
18. Entire Agreement. This Agreement and the documents referred to herein,
which are intended to be incorporated by way of reference, embody the
entire agreement and understanding among the parties hereto, and
supersede all prior agreements and understandings relating to the
subject matter hereof.
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19. Severability. Should any part of this Agreement be held invalid by a
court decision, statute, rule, or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and
their respective successors.
20. Interpretation. Any questions of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by
reference to such term or provision in the 1940 Act and to
interpretation thereof, if any, by the federal courts or, in the
absence of any controlling decision of any such court, by rules,
regulations, or orders of the SEC validly issued pursuant to the 1940
Act. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation, or order
of the SEC, whether of special or general application, such provision
shall be deemed to incorporate the effect of such rule, regulation, or
order.
21. Authorization. Each of the parties represents and warrants that the
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly authorized
by all necessary corporate action by such party and when so executed
and delivered, this Agreement will be the valid and binding obligation
of such party in accordance with its terms.
22. Reliance. TINTL may rely and act on any written instruction or
communication that purports to have been given (and that TINTL
reasonably believes to have been given) by AEFC. TINTL will not be
liable for any loss arising from its acting on such an instruction.
AEFC shall be responsible for providing TINTL with a list of those
individuals authorized to issue instructions to TINTL.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
AMERICAN EXPRESS THREADNEEDLE
FINANCIAL CORPORATION INTERNATIONAL LIMITED
By: /s/ Xxxxx X. Xxxxx By: /s/ Xxxxxxx Xxxxxxx
---------------------------------- ----------------------------
Signature Signature
Name: Xxxxx X. Xxxxx Name: Xxxxxxx Xxxxxxx
---------------------------------- ----------------------------
Printed Printed
Sr. Vice President and
Title: General Manager - Mutual Funds Title: Director
---------------------------------- ----------------------------
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SCHEDULE 1
-----------------------------------------------------------------------
Assets under management
------------------- ----------------- ----------------- ---------------
$0-150 next $500 next $500 thereafter
million million million
------------------------------------------ ------------------- ----------------- ----------------- ---------------
Funds bps bps bps bps
------------------------------------------ ------------------- ----------------- ----------------- ---------------
AXP Emerging Markets Fund 45 40 35 30
------------------------------------------ ------------------- ----------------- ----------------- ---------------
AXP VP Emerging Markets Fund 45 40 35 30
------------------------------------------ ------------------- ----------------- ----------------- ---------------
AXP European Equity Fund 35 30 25 20
------------------------------------------ ------------------- ----------------- ----------------- ---------------
AXP Global Balanced Fund (equity portion 35 30 25 20
only)
------------------------------------------ ------------------- ----------------- ----------------- ---------------
AXP Global Equity Fund 35 30 25 20
------------------------------------------ ------------------- ----------------- ----------------- ---------------
AXP International Fund 35 30 25 20
------------------------------------------ ------------------- ----------------- ----------------- ---------------
AXP VP International Fund 35 30 25 20
------------------------------------------ ------------------- ----------------- ----------------- ---------------
The rates shown above apply to the corresponding portion of the respective
portfolio. For example, if the average daily net assets for the AXP Emerging
Markets Fund for a given month are $650 million, then the applicable rates shall
be 45 bps on $150 million and 40 bps on the remaining $500 million.
Performance fee adjustment
1. Effective December 1, 2004, the fees payable to TINTL by AEFC shall be
subject to adjustment as set out below.
2. The amount of the adjustment to the fees payable to TINTL, whether
positive or negative, shall be equal to one-half (1/2) of the
performance incentive adjustment ("PIA") made to the investment
management fee that AEFC is currently entitled to under the terms of
the Advisory Agreement.
3. For each Fund, the PIA will be determined monthly and will be based on
the percentage difference over a rolling 12-month period between the
performance of one Class A share of the Fund and the change in the
Lipper peer group index that appears in the prospectus for the Fund
(Index). The performance difference determines the exact adjustment
rate. The adjustment rate is computed to five decimal places in
accordance with the following table:
--------------------------- -------------------------------------------------------------------------------------
Performance difference Adjustment rate
--------------------------- -------------------------------------------------------------------------------------
0.00% - 0.50% 0
--------------------------- -------------------------------------------------------------------------------------
0.50% - 1.00% 6 basis points times the performance difference over 0.50% (maximum of 3 basis
points if a 1% performance difference)
--------------------------- -------------------------------------------------------------------------------------
1.00% - 2.00% 3 basis points, plus 3 basis points times the performance difference over 1.00%
(maximum 6 basis points if a 2% performance difference)
--------------------------- -------------------------------------------------------------------------------------
2.00% - 4.00% 6 basis points, plus 2 basis points times the performance difference over 2.00%
(maximum 10 basis points if a 4% performance difference)
--------------------------- -------------------------------------------------------------------------------------
4.00% - 6.00% 10 basis points, plus 1 basis point times the performance difference over 4.00%
(maximum 12 basis points if a 6% performance difference)
--------------------------- -------------------------------------------------------------------------------------
6.00% or more 12 basis points
--------------------------- -------------------------------------------------------------------------------------
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For example, if the Fund return is 5.38% and the Index performance is 3.00%, so
that the performance difference is 2.38%, the adjustment rate is 0.000676
(0.0006 (6 basis points) plus 0.0038 (the 0.38% performance difference over
2.00% x 0.0002) (2 basis points) x 100 (0.000076)). Rounded to five decimal
places, the adjustment rate is 0.00068. Fees payable to TINTL will be adjusted
up or down in an amount equal to one-half of the amounts (e.g. 0.00034)
determined by applying the adjustment rate to the amounts currently payable
under the Advisory Agreement.
Date: __________________________, 2004
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EXHIBIT A
TINTL and American Express Financial Corporation (AEFC) hereby agree that the
following COB Rules required statements, disclosures and other provisions form
an Attachment to the Subadvisory Agreement effective as between TINTL and AEFC
as of the 10th day of July 2004.
I. Appointment of TINTL
AEFC appoints TINTL and TINTL accepts such appointment to determine in its
discretion, but consistent with the Funds' investment objectives and policies
and subject to the supervision and approval of AEFC and of the Funds' Boards,
which securities (including both domestic and foreign securities) shall be
purchased, held or sold and to execute or cause the execution of purchase and
sell orders.
The investment objective of each Fund is intended only as an indication of a
level of performance that TINTL will aim to achieve. It should not be construed
as a warranty or assurance that TINTL will be able to achieve any particular
level of performance or that TINTL will take any steps beyond the exercise of
its normal investment judgment or process with a view to doing so. In
particular, TINTL does not accept liability in the event that any investment
objectives are not achieved, and AEFC acknowledges that there is a material
statistical risk that the investment objectives will not be met.
II. Incorporation of Prospectus and Statement of Additional Information
The Prospectuses and Statements of Additional Information for the Funds are
hereby incorporated and shall be seen as forming part of this Attachment.
III. Portfolio Transactions and Commissions/Relevant Arrangements
TINTL is responsible for seeing that the Funds' securities transactions are
effected, for choosing the executing firms, and for determining the brokerage
commissions to be paid to such firms in a manner and in accordance with the
procedures and standards as set forth in, or as established in accordance with,
the Advisory Agreement between the investment manager and the Funds. With regard
to these executions, TINTL shall seek to secure best execution, defined as the
best net results for the Funds, taking into consideration such factors as price,
commission, dealer spread, size of order, difficulty of execution, operational
facilities of the executing firm involved, that firm's risk in positioning a
block of securities and the overall benefits of supplemental investment research
provided by such firm.
To the extent that any such securities transactions may be effected for the
Funds with or through the agency of a person who provides such services under
any relevant arrangement, such transactions shall be effected so as to seek to
secure for the Funds best execution of the transactions disregarding any benefit
which might inure directly or indirectly from the services or benefits provided
under that arrangement, since such arrangements will relate solely to
transactions in markets and on exchanges where commission rates are fixed.
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IV. Investment
A. In currency transactions a movement of the exchange rate may have a
separate effect, unfavorable as well as favorable, on the gain or loss
otherwise experienced on the investment.
B. Services provided by TINTL may relate to Investments Not Readily
Realisable. When such securities are not readily realisable; there can
be no certainty that market makers will be prepared to deal in them,
nor may they have proper information for determining their current
value.
C. The Funds may invest in units in Collective Investment Schemes which,
for the purposes of COB Rules, are Unregulated Collective Investment
Schemes.
D. The Funds may not acquire or dispose of units in a Collective
Investment Scheme either operated or advised by TINTL or by an
Associate of TINTL.
E. The Funds may not contain securities of which an issue or offer for
sale was underwritten, managed or arranged by TINTL during the
preceding twelve months. The Funds may, however, contain securities of
which an issue or offer for sale was underwritten, managed or arranged
by an Associate of TINTL during the preceding twelve months.
F. Subject to the extent permitted or not prohibited by any applicable law
and subject to procedures established by the Funds' Boards and AEFC of
which TINTL is given notice, TINTL may effect transactions on behalf of
the Funds with an Associate. In all Portfolio transactions so effected
by TINTL, TINTL could be deemed by COB Rules either to be effecting a
transaction in which TINTL has a direct or indirect material interest,
or a transaction which may involve a conflict with TINTL's duty to the
Funds.
G. TINTL may not commit the Funds to an obligation to underwrite any issue
or offer for the sale of securities, but under certain securities laws
the Funds may be deemed to be an underwriter where it purchases
securities directly from the issuer and later resells them.
H. TINTL may not commit the Funds to supplement the Funds either by
borrowing on their behalf or by committing them to a contract of
performance which may have required it to supplement the Funds.
I. Until AEFC notifies TINTL otherwise, TINTL shall be permitted to effect
transactions in Options, Futures, and/or Contracts for Differences. By
entering into this Agreement AEFC acknowledges that it has read and
understood the risk warning in Appendix 3.
J. AEFC shall inform TINTL of any restrictions regarding the markets in
which transactions may be effected.
-14-
V. Administration
A. TINTL shall not, under any circumstance, act as custodian or trustee
for the Funds, nor hold money, nor be the registered holder of the
Funds' registered investments nor be the custodian of documents or
other evidence of title.
B. American Express Trust Company, an Associate of TINTL, acts as
Custodian with respect to the Fund. American Express Trust Company has
a subcustodial agreement with The Bank of New York, an entity not an
Associate of TINTL.
Money shall be deposited with The Bank of New York in the account name of
American Express Trust Company (AETC). AEFC, an Associate of both TINTL and
AETC, may procure that investments, documents of title, certificates evidencing
title to investments and other property belonging to the Funds may be lent to a
third party in accordance with a resolution of the Funds' Boards but that money
may not be borrowed on the Funds' behalf against the investments documents,
certificates or property hereinabove mentioned.
With respect to the Funds, TINTL understands that The Bank of New York has
procedures for accounting to the Funds regarding income received and rights
conferred in respect of the investments held.
TINTL accepts no responsibility for the default of any such Custodian so
appointed by the Funds.
The Boards of the Funds shall exercise all voting rights conferred on the owners
of the securities in the Fund.
C. TINTL shall furnish to AEFC monthly written reports on the valuation of
the Funds, including both securities and cash and showing all
investments, receipts, disbursements and other transactions involving
the Funds during the accounting period and also showing the assets of
the Funds held at the end of the period and their market values. Such
reports do not include any measurement of performance.
D. TINTL has in operation a written procedure for the effective
consideration and proper handling of complaints. Any complaint by, or
on behalf of, the Funds should be sent in writing to:
Threadneedle International Limited
00 Xx. Xxxx Xxx
Xxxxxx, Xxxxxx Xxxxxxx XX0X 0XX
For the attention of Compliance Director
-15-
VI. Termination
Termination shall be without prejudice to the completion of transactions
initiated prior to such termination, said transactions being completed according
to their terms. Termination shall occur in accordance with procedures
established in the Subadvisory Agreement.
VII. Investment Management Fees
Pursuant to the COB Rules regarding the supplement and abatement of fees, TINTL
hereby acknowledges that for the performance of services contemplated by the
Subadvisory Agreement, it shall receive only the compensation set out in the
Subadvisory Agreement. Such compensation shall be payable in accordance with the
agreed provisions regarding compensation to TINTL.
In circumstances where TINTL effects a transaction on behalf of the Funds with
an Associate, that Associate may receive commissions; such commissions, however,
would not supplement or xxxxx TINTL's above-mentioned agreed compensation.
VIII. Miscellaneous
Calls: Under the terms of the Subadvisory Agreement TINTL has the right for
itself, its representatives, or its employees to make calls to AEFC at
appropriate times, with the caller identifying himself/herself at the start of
the conversation.
-16-
APPENDIX 1
RISK WARNINGS FOR CUSTOMERS
1. Unsolicited Real Time Communications
In the interests of the proper management and administration of the
Funds, TINTL or its Associates or its or their delegates, agents or
employees may call upon AEFC by telephone, or visit or otherwise
communicate with AEFC without express invitation. The Schedule sets out
the circumstances, if any, in which those communications may be made.
2. Exchange Rate Risk
A movement of exchange rates may affect, unfavourably as well as
favourably, any gain or loss on an Investment.
3. Stabilisation
TINTL may effect transactions in Investments the prices of which may be
being stabilised. AEFC's attention is drawn to the Stabilisation Risk
Warning in Appendix 2.
4. Non-Readily Realisable Investments
TINTL may invest in non-readily realisable Investments, which means
that there is a restricted market for them. It may therefore be
difficult to deal in such Investments or to obtain reliable information
about their value or the extent of the risks to which they are exposed.
5. Warrants and Derivatives
Where TINTL is permitted to effect transactions in warrants and
derivatives including contingent liability transactions, AEFC's
attention is drawn to the Warrants and Derivatives risk warning notice
in Appendix 3.
6. Unregulated Collective Investment Schemes
Subject to any investment restrictions set out in the relevant
Schedule, the services provided by TINTL may include advising on or
effecting transactions in units in Unregulated Collective Investment
Schemes.
7. Regulated Collective Investment Schemes
In respect of any services provided by TINTL under the Agreement
relating to units in a Regulated Collective Investment Scheme, AEFC
will have no right to cancel any such transaction under the
Cancellation Rules.
-17-
8. Real Property
Real property and securities of entities dealing in real property may
not always be readily saleable and their value can be a matter of a
valuer's opinion.
9. Xxxxx Shares
TINTL may invest on the Funds' behalf in xxxxx shares and AEFC should
therefore be aware that there is an extra risk of losing money when
shares are bought in some smaller companies including xxxxx shares.
There is a big difference between the buying and selling price of these
shares. If they have to be sold immediately, the Funds may get back
much less than they paid for them. The price may change quickly and it
may go down as well as up.
10. Packaged Products
TINTL may effect transactions in packaged products.
11. Overseas Business
TINTL may conduct investment business covered by this Agreement from an
office outside the UK or may make an introduction or arrangements or
give advice on investments with a view to overseas brokers or other
third parties conducting investment business with AEFC from an office
outside the United Kingdom. Where this is the case, AEFC should note
that in some or all respects the regulatory system applying, including
any compensation arrangements, will be different from that of the
United Kingdom.
12. General
The value of Investments and the income from them is not guaranteed and
may fluctuate and the value of the Funds at any time may be more or
less than the Initial Value.
The market for some Investments may be made by less than three
independent Market Makers.
In-House Funds may be subject to charges and expenses that are not made
uniformly throughout the life of the Investment.
-18-
APPENDIX 2
STABILISATION RISK WARNING
This statement complies with the rules of the Financial Services Authority
(FSA).
TINTL, an Associate or a representative may, from time to time, recommend
transactions in securities to you, or carry out such transactions on your
behalf, where the price may have been influenced by measures taken to stabilise
it.
You should read the explanation below carefully. This is designed to help you
judge whether you wish your funds to be invested at all in such securities and,
if you do, whether you wish:
1. to be consulted before TINTL or an Associate carries out any such
transactions on your behalf; or
2. to authorise TINTL or an Associate to carry out any such transaction on
your behalf without first having to consult you.
What is stabilisation?
Stabilisation enables the market price of a security to be maintained
artificially during the period when a new issue of securities is sold to the
public. Stabilisation may affect not only the price of the new issue but also
the price of other securities relating to it. The FSA allows stabilisation in
order to help counter the fact that, when a new issue comes onto the market for
the first time, the price can sometimes drop for a time before buyers are found.
Stabilisation is being carried out by a "stabilisation manager" (normally the
firm chiefly responsible for bringing a new issue to market). As long as the
stabilising manager follows a strict set of rules, he is entitled to buy back
securities that were previously sold to investors or allotted to institutions
which have decided not to keep them. The effect of this may be to keep the price
at a higher level than it would otherwise be during the period of stabilisation.
The Stabilisation Rules:
1. limit the period when a stabilising manager may stabilise a new issue;
2. fix the price at which he may stabilise (in the case of shares and warrants
but not bonds); and
3. require him to disclose that he may be stabilising but not that he is
actually doing so.
The fact that a new issue or a related security is being stabilised should not
be taken as any indication of the level of interest from investors, nor of the
price at which they are prepared to buy the securities.
-19-
APPENDIX 3
WARRANTS AND DERIVATIVES RISK WARNING NOTICE
This notice is provided to you in compliance with the rules of the Financial
Services Authority (FSA). This notice cannot disclose all the risks and other
significant aspects of warrants and/or derivative products such as futures,
options and contracts for differences. You should not deal in these products
unless you understand their nature and the extent of your exposure to risk. You
should also be satisfied that the product is suitable for you in the light of
your circumstances and financial position. Certain strategies, such as a
"spread" position or a "straddle", may be as risky as a simple "long" or "short"
position.
Although warrants and/or derivative instruments can be utilised for the
management of investment risk, some of these products are unsuitable for many
investors. Different instruments involve different levels of exposure to risk
and in deciding whether to trade in such instruments you should be aware of the
following points.
1. Warrants
A warrant is a time-limited right to subscribe for shares, debentures,
loan stock or government securities and is exercisable against the
original issuer of the underlying securities. A relatively small
movement in the price of the underlying security results in a
disproportionately large movement, unfavourable or favourable, in the
price of the warrant. The prices of warrants can therefore be volatile.
It is essential for anyone who is considering purchasing warrants to
understand that the right to subscribe which a warrant confers is
invariably limited in time with the consequence that if the investor
fails to exercise this right within the predetermined time-scale then
the investment becomes worthless.
You should not buy a warrant unless you are prepared to sustain a total
loss of the money you have invested plus any commission or other
transaction charges.
Some other instruments are also called warrants but are actually
options (for example, a right to acquire securities which is
exercisable against someone other than the original issuer of the
securities, often called a "covered warrant").
2. Off-exchange warrant transactions
Transactions in off-exchange warrants may involve greater risk than
dealing in exchange traded warrants because there is no exchange market
through which to liquidate your position, or to assess the value of the
warrant or the exposure to risk. Bid and offer prices need not be
quoted, and even where they are, they will be established by dealers in
these instruments and consequently it may be difficult to establish
what is a fair price.
Your firm must make it clear to you if you are entering into an
off-exchange transaction and advise you of any risks involved.
-20-
3. Futures
Transactions in futures involve the obligation to make, or to take,
delivery of the underlying asset of the contract at a future date, or
in some cases to settle the position with cash. They carry a high
degree of risk. The "gearing" or "leverage" often obtainable in futures
trading means that a small deposit or down payment can lead to large
losses as well as gains. It also means that a relatively small movement
can lead to a proportionately much larger movement in the value of your
investment, and this can work against you as well as for you. Futures
transactions have a contingent liability, and you should be aware of
the implications of this, in particular the margining requirements,
which are set out in section 8.
4. Options
There are many different types of options with different
characteristics subject to the following conditions.
Buying options:
Buying options involves less risk than selling options because, if the
price of the underlying asset moves against you, you can simply allow
the option to lapse. The maximum loss is limited to the premium, plus
any commission or other transaction charges. However, if you buy a call
option on a futures contract and you later exercise the option, you
will acquire the future. This will expose you to the risks described
under "futures" and "contingent liability investment transactions".
Writing options:
If you write an option, the risk involved is considerably greater than
buying options. You may be liable for margin to maintain your position
and a loss may be sustained well in excess of the premium received. By
writing an option, you accept a legal obligation to purchase or sell
the underlying asset if the option is exercised against you, however
far the market price has moved away from the exercise price. If you
already own the underlying asset which you have contracted to sell
(when the options will be known as "covered call options") the risk is
reduced. If you do not own the underlying asset ("uncovered call
options") the risk can be unlimited. Only experienced persons should
contemplate writing uncovered options, and then only after securing
full details of the applicable conditions and potential risk exposure.
Traditional options:
Certain London Stock Exchange member firms under special exchange rules
write a particular type of option called a "traditional option". These
may involve greater risk than other options. Two-way prices are not
usually quoted and there is no exchange market on which to close out an
open position or to effect an equal and opposite transaction to reverse
an open position. It may be difficult to assess its value or for the
seller of such an option to manage his exposure to risk.
-21-
Certain options markets operate on a margined basis, under which buyers
do not pay the full premium on their option at the time they purchase
it. In this situation you may subsequently be called upon to pay margin
on the option up to the level of your premium. If you fail to do so as
required, your position may be closed or liquidated in the same way as
a futures position.
5. Contracts for differences
Futures and options contracts can also be referred to as contracts for
differences. These can be options and futures on the FTSE 100 index or
any other index, as well as currency and interest rate swaps. However,
unlike other futures and options, these contracts can only be settled
in cash. Investing in a contract for differences carries the same risks
as investing in a future or an option and you should be aware of these
as set out in section 3 and 4 respectively. Transactions in contracts
for differences may also have a contingent liability and you should be
aware of the implications of this as set out in section 8.
6. Off-exchange transactions in derivatives
It may not always be apparent whether or not a particular derivative is
arranged on exchange or in an off-exchange derivative transaction. Your
firm must make it clear to you if you are entering into an off-exchange
derivative transaction.
While some off-exchange markets are highly liquid, transactions in
off-exchange or "non transferable" derivatives may involve greater risk
than investing in on-exchange derivatives because there is no exchange
market on which to close out an open position. It may be impossible to
liquidate an existing position, to assess the value of the position
arising from an off-exchange transaction or to assess the exposure to
risk. Bid prices and offer prices need not be quoted, and, even where
they are, they will be established by dealers in these instruments and
consequently it may be difficult to establish what is a fair price.
7. Foreign markets
Foreign markets will involve different risks from the UK markets. In
some cases the risks will be greater. On request, your firm must
provide an explanation of the relevant risks and protections (if any)
which will operate in any foreign markets, including the extent to
which it will accept liability for any default of a foreign firm
through whom it deals. The potential for profit or loss from
transactions on foreign markets or in foreign denominated contracts
will be affected by fluctuations in foreign exchange rates.
8. Contingent liability investment transactions
Contingent liability investment transactions, which are margined,
require you to make a series of payments against the purchase price,
instead of paying the whole purchase price immediately.
If you trade in futures contracts for differences or sell options, you
may sustain a total loss of the margin you deposit with your firm to
establish or maintain a position. If the
-22-
market moves against you, you may be called upon to pay substantial
additional margin at short notice to maintain the position. If you
fail to do so within the time required, your position may be
liquidated at a loss and you will be responsible for the resulting
deficit. Even if a transaction is not margined, it may still carry an
obligation to make further payments in certain circumstances over and
above any amount paid when you entered the contract.
Save as specifically provided by the FSA, your firm may only carry out
margined or contingent liability transactions with or for you if they
are traded on or under the rules of a recognised or designated
investment exchange. Contingent liability investment transactions which
are not so traded may expose you to substantially greater risks.
9. Limited liability transactions
Before entering into a limited liability transaction, you should obtain
from your firm or the firm with whom you are dealing a formal written
statement confirming that the extent of your loss liability on each
transaction will be limited to an amount agreed by you before you enter
into the transaction.
The amount you can lose in limited liability transactions will be less
than in other margined transactions, which have no predetermined loss
limit. Nevertheless, even though the extent of loss will be subject to
the agreed limit, you may sustain the loss in a relatively short time.
Your loss may be limited, but the risk of sustaining a total loss to
the amount agreed is substantial.
10. Collateral
If you deposit collateral as security with your firm, the way in which
is will be treated will vary according to the type of transaction and
where it is traded. There could be significant differences in the
treatment of your collateral, depending on whether you are trading on a
recognised or designated investment exchange, with the rules of that
exchange (and the associated clearing house) applying, or trading
off-exchange. Deposited collateral may lose its identity as your
property once dealings on your behalf are undertaken. Even if your
dealings should ultimately prove profitable, you may not get back the
same assets which you deposited, and may have to accept payment in
cash. You should ascertain from your firm how your collateral will be
dealt with.
11. Commissions
Before you begin to trade, you should obtain details of all commissions
and other charges for which you will be liable. If any charges are not
expressed in money terms (but, for example, as a percentage of contract
value), you should obtain a clear and written explanation, including
appropriate examples, to establish what such charges are likely to mean
in specific money terms. In the case of futures, when commission is
charged as a percentage, it will normally be as a percentage of the
total contract value, and not simply as a percentage of your initial
payment.
-23-
12. Suspensions of trading
Under certain trading conditions it may be difficult or impossible to
liquidate a position. This may occur, for example, at times of rapid
price movement if the price rises or falls in one trading session to
such an extent that under the rules of the relevant exchange trading is
suspended or restricted. Placing a stop-loss order will not necessarily
limit your losses to the intended amounts, because market conditions
may make it impossible to execute such an order at the stipulated
price.
13. Clearing house protections
On many exchanges, the performance of a transaction by your firm (or
third party with whom he is dealing on your behalf) is "guaranteed" by
the exchange or clearing house. However, this guarantee is unlikely in
most circumstances to cover you, AEFC, and may not protect you if your
firm or another party defaults on its obligations to you. On request,
your firm must explain any protection provided to you under the
clearing guarantee applicable to any on-exchange derivatives in which
you are dealing. There is no clearing house for traditional options,
nor normally for off-exchange instruments which are not traded under
the rules of a recognised or designated investment exchange.
14. Insolvency
Your firm's insolvency or default, or that of any other brokers
involved with your transaction, may lead to positions being liquidated
or closed out without your consent. In certain circumstances you may
not get back the actual assets which you lodged as collateral and you
may have to accept any available payments in cash. On request, your
firm must provide an explanation of the extent to which it will accept
liability for any insolvency of, or default by, other firms involved
with your transactions.
By signing this Agreement, AEFC acknowledges that it has read,
understood and accepted the risk warnings set out above.
-24-
APPENDIX 4
TINTL'S SOFT COMMISSION POLICY 2004
It is TINTL's policy to obtain from its counterparties goods and services such
as computer information, advice, analysis, valuation and custody facilities to
assist its investment services to its customers generally, including services
supplied under Soft Commission Agreements. A Soft Commission Agreement is an
agreement in any form, the terms of which permit a firm to receive certain goods
and services from another person in return for transacting Designated Investment
Business with or through that other person.
In each stock market, TINTL negotiates (regardless of any Soft Commission
Agreements) standard dealing terms and commissions as appropriate to the local
market practice: in consideration of commission, counterparties may undertake
Best Execution of equity deals and give their own or suppliers' advice and
analysis of local market- and stock-related information.
TINTL makes Soft Commission Agreements in accordance with the FSA Rules and the
agreements with its customers generally. The benefits do not necessarily relate
to particular transactions or customers, but only certain goods and services
that will assist in its investment service generally are permitted: basically
facilities to support investment decisions, valuation, performance measurement
and safe custody.
Typical examples are:
Electronic information feeds - Reuters and Bloomberg
Paper Research - Lombard Street Research
Funds valuation, pricing and performance measurement computer systems - DST and
WM Company.
TINTL carefully monitors Soft Commission Agreements, and every invoice is
approved against the FSA Rules before being passed; UK counterparties also
independently vet the invoices they receive against the same FSA rules.
The benefits under Soft Commission Agreements may not include cash or any other
financial benefit, and where any part of the tax paid on goods and services
received under Soft Commission Agreements is reclaimed by TINTL, such amounts
are applied to the relevant goods and services.
TINTL will only enter into a Soft Commission Agreement with a counterparty who
provides a high standard of service on its standard market terms under an
existing relationship. In accordance with FSA guidance, the written Soft
Commission Agreement must confirm a duty of Best Execution and that there will
not be a comparative price disadvantage to the Funds. The services provided
under Soft Commission Agreements are restricted by a fixed ceiling for each
counterparty and the proportion of commissions received under Soft Commission
Agreements is agreed with them in advance.
-25-
TINTL will report to its customers particulars of Soft Commission Agreements in
accordance with FSA requirements which currently are:
(i) the percentage paid under all Soft Commission Agreements of the total
commission paid by or at the direction of TINTL;
(ii) the value (on a cost price basis) of services received by TINTL under
Soft Commission Agreements, expressed as a percentage of the total
commission paid by or at the direction of TINTL;
(iii) a summary of the services received by TINTL under Soft Commission
Agreements;
(iv) a list of counterparties to Soft Commission Agreements; and
(v) the total commission paid from the portfolio of the Funds.
-26-
