SUB-ADVISORY AGREEMENT
THIS
AGREEMENT
is made
and entered into as of this 20th day of October, 2006, by and among Alternative
Investment Partners, LLC, a Delaware limited liability company (the “Advisor”),
Xxxxxx Asset Management, a Delaware limited liability company (the
“Sub-Advisor”), and the Underlying Funds Trust, a Delaware statutory trust (the
“Trust”) on behalf of its series, Long/Short Equity - Deep Discount Value - 1
(the “Fund”).
WHEREAS,
the
Trust
and each series comprising the Trust, including the Fund (the “Funds”), have
been formed for the purpose of creating a fund-of-funds structure with their
affiliate, AIP Alternative Strategies Funds, a Delaware statutory trust (“AIP
Funds”), in which each series of AIP Funds, including any future series of AIP
Funds, invests 100% of its assets in certain or all of the Funds;
and
WHEREAS,
by
virtue of the fund-of-funds structure, the Sub-Advisor will indirectly serve
as
a sub-advisor to any series of AIP Funds which invests in the Fund;
and
WHEREAS,
the
Trust, and therefore, the Fund, is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
“1940 Act”); and
WHEREAS,
the
Advisor has been appointed investment advisor to the Fund, pursuant to an
Investment Advisory Agreement dated April 28, 2006, which has been approved
by
the Fund’s Board of Trustees (the “Advisory Agreement”); and
WHEREAS,
the
Advisor shall have in its sole discretion the decision as to the percentage
of
the Fund’s net assets to be contributed into or subtracted from the Fund and to
be advised by the Sub-Advisor; and
WHEREAS,
the
Advisor and the Trust desire to retain the Sub-Advisor to assist the Advisor
in
providing a continuous investment program for a portion of the Fund’s assets
(designated herein as a “Separate Account”) and the Sub-Advisor is willing to do
so; and
WHEREAS,
the
Board of Trustees of the Trust has approved this Agreement, and the Sub-Advisor
is willing to furnish such services upon the terms and conditions herein set
forth.
NOW,
THEREFORE,
in
consideration of the premises and mutual covenants herein contained, it is
agreed between the parties hereto as follows:
1. Appointment.
The
Advisor and the Trust hereby appoint the Sub-Advisor to serve as sub-advisor
to
the Advisor with respect to the Separate Account. Intending to be legally bound,
the Sub-Advisor accepts such appointment and agrees to render the services
herein set forth for the compensation herein provided. The Sub-Advisor may
delegate its power to render the services herein set forth to Xx. Xxxxxxx Xxxxx,
a Supervised Person, as defined by the 1940 Act, of the Sub-Advisor (the
“Delegate”); provided,
however, that
the
Delegate shall at all times be subject to the supervision and control of the
Sub-Advisor and notwithstanding such delegation the Sub-Advisor remains
responsible for all of its obligations and covenants herein set forth and is
fully responsible for the Delegate’s compliance with the terms and conditions
set forth herein. Sub-Advisor shall provide a copy of the duly executed
agreement by and between the Sub-Advisor and the Delegate within ten (10) days
of such execution.
1
2. Advisory
Services.
Subject
to the supervision of the Trust’s Board of Trustees and the Advisor, the
Sub-Advisor will assist the Advisor in providing a continuous investment program
for the Separate Account, including investment research and management with
respect to the securities and investments and cash equivalents comprising the
Separate Account. The Sub-Advisor will provide services under this Agreement
in
accordance with the Fund’s investment objective, policies and restrictions as
stated in the Fund’s Prospectus and resolutions of the Trust’s Board of Trustees
applicable to the Fund.
Without
limiting the generality of the foregoing, the Sub-Advisor further agrees that
it:
(a) will
assist in determining from time to time what securities and other investments
will be purchased, retained or sold for the Separate Account;
(b) will
manage in consultation with the Advisor the Separate Account’s temporary
investments in securities, cash and cash equivalents;
(c) will
place orders pursuant to its investment determinations for the Separate Account
either directly with the issuer or with any broker or dealer;
(d) will
consult with the Advisor on a continuous basis as to the Fund’s total assets
which shall be invested in the Separate Account;
(e) will
attend regular business and investment-related meetings with the Trust’s Board
of Trustees and the Advisor if requested to do so by the Trust and/or the
Advisor; and
(f) will
maintain
books and records with respect to the securities transactions for the Separate
Account, furnish to the Advisor and the Trust’s Board of Trustees such periodic
and special reports as they may request with respect to the Separate Account,
and provide in advance to the Advisor all reports to the Board of Trustees
for
examination and review within a reasonable time prior to the Trust’s Board
meetings.
3. Covenants
by the Sub-Advisor.
The
Sub-Advisor agrees with respect to the services provided to the Fund that
it:
(a) as
part
of its retention as a Sub-Advisor, with respect to the investment of a portion
of the assets held by the Fund, as determined by the Advisor, is authorized
by
its governing documents to enter into this Agreement and the terms of this
Agreement do not violate any obligation by which the Sub-Advisor or the Delegate
is bound, whether arising by contract, operation of law or
otherwise;
(b) will
maintain its status as a Registered Investment Advisor with the Securities
and
Exchange Commission and the Delegate will maintain his status as a Supervised
Person of the Sub-Advisor;
2
(c) will,
and
will cause the Delegate to, conform with all Rules and Regulations of the
Securities and Exchange Commission;
(d) will,
or
will cause the Delegate to, telecopy trade information 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;
(e) will,
and
will cause the Delegate to, 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, and will ensure the Delegate
will not, use such records and information for any purpose other than
performance of its responsibilities and duties hereunder (except (i)
after
prior written notification to the Trust, to
respond to requests that are a part of routine regulatory audits or inspections
or (ii) after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld, and may not be withheld and will
be
deemed granted where the Sub-Advisor may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the Trust);
(f) will
maintain its own Code of Ethics and report to the Advisor’s Compliance Officer
any violation of such Code that pertains to the management of the Fund, via
a
periodic compliance certification; and
(g) will
maintain its own compliance program or manual, pursuant to Rule 206(4)-7 of
the
Investment Advisors Act. The Sub-Advisor will provide either the manual or
a
summary thereof, including updates thereto, to the Advisor’s Compliance
Officer.
4. Covenants
by the Advisor and the Trust.
The
Advisor and the Trust agree with respect to the services provided to the
Fund:
(a) that
the
retention of the Sub-Advisor as investment advisor with respect to the
investment of a portion of the properties held by the Fund, as determined by
the
Advisor, is authorized by the governing documents relating to the Fund, and
the
terms of this Agreement do not violate any obligation by which the Fund is
bound, whether arising by contract, operation of law or otherwise;
(b) that
the
Sub-Advisor may use the Fund’s name on a representative client
list.
5. Services
Not Exclusive.
The
services furnished by the Sub-Advisor hereunder are deemed not to be exclusive,
and nothing in this Agreement shall (i) prevent the Sub-Advisor or any
affiliated person (as defined in the 0000 Xxx) of the Sub-Advisor or any
employee, agent, manager or affiliated person of such person from acting as
investment advisor or manager for any other person or persons, including other
management investment companies or investment vehicles or accounts of any type
with investment objectives and policies the same as or similar to those of
the
Fund or (ii) limit or restrict the Sub-Advisor or any such employee, agent,
manager or affiliated person from buying, selling or trading any securities
or
other investments (including any securities or other investments which the
Fund
is eligible to buy) for its or their own accounts or for the accounts of others
for whom it or they may be acting; provided,
however, that
the
Sub-Advisor agrees that it will not undertake any activities which, in its
reasonable judgment, will adversely affect the performance of its material
obligations under this Agreement.
3
6. Separate
Account Transactions.
Investment decisions for the Separate Account shall be made by the Sub-Advisor
independently from those for any other investment companies and accounts advised
or managed by the Sub-Advisor. The Separate Account and such investment
companies and accounts may, however, invest in the same securities. When a
purchase or sale of the same security is made at substantially the same time
on
behalf of the Separate Account and/or another investment company or account,
the
transaction will be averaged as to price, and available investments allocated
as
to amount, in a manner which the Sub-Advisor believes to 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-Advisor may aggregate the securities to be sold or
purchased for the Separate Account with those to be sold or purchased for other
investment companies or accounts in order to obtain best execution.
The
Sub-Advisor shall place orders for the purchase and sale of portfolio securities
for the Separate Account and will solicit broker-dealers to execute transactions
in accordance with the Fund’s policies and restrictions regarding brokerage
allocations. If applicable, the Sub-Advisor shall place orders pursuant to
its
investment determinations for the Separate Account either directly with the
issuer or with any broker or dealer. If it executes portfolio transactions
and
selects brokers or dealers, the Sub-Advisor shall use its reasonable best
efforts to seek the most favorable execution of orders, after taking into
account all factors the Sub-Advisor deems relevant, including the breadth of
the
market in the security, the price of the security, the financial condition
and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
Consistent with this obligation, the Sub-Advisor may, to the extent permitted
by
law, purchase and sell portfolio securities to and from brokers and dealers
who
provide brokerage and/or research services (within the meaning of Section 28(e)
of the Securities Exchange Act of 1934) to or for the benefit of the Separate
Account and/or other accounts over which the Sub-Advisor or any of its
affiliates exercises investment discretion. The Sub-Advisor is authorized to
pay
to a broker or dealer who provides such brokerage and/or research services
a
commission for executing a portfolio transaction for the Separate Account which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Sub-Advisor determines in good
faith that such commission was reasonable in relation to the value of the
brokerage and/or research services provided by such broker or dealer, viewed
in
terms of either that particular transaction or the Sub-Advisor’s overall
responsibilities to the Fund. In no instance will portfolio securities be
purchased from or sold to the Advisor or the Sub-Advisor or any affiliated
person of either thereof; except as permitted by Rules and Regulations of the
Securities and Exchange Commission.
7. Covenants
of the Advisor.
The
Advisor agrees with respect to the services provided to the Advisor hereunder
that the Advisor will conform to the applicable Rules and Regulations of the
Securities and Exchange Commission.
4
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-Advisor hereby agrees that all records which it maintains for the Fund
are
the property of the Trust and further agrees to surrender promptly to the Trust
any of such records upon the Trust’s request. The Sub-Advisor further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
10. Expenses.
During
the term of this Agreement, the Sub-Advisor will pay its own expenses incurred
by it in connection with its advisory activities under this Agreement. Nothing
herein, however, shall be deemed to require the Sub-Advisor to pay any expenses
of the Fund or the Advisor.
11. Compensation.
In
consideration of the services rendered pursuant to this Agreement, during the
term of this Agreement the Advisor will pay to the Sub-Advisor, as compensation
for the services provided by the Sub-Advisor under this Agreement, a monthly
fee
equal to 1.00% (on an annualized basis) of the average net assets of the
Separate Account, plus any leveraged amount applied to the Separate Account
by
the Advisor. The Advisor shall pay the Sub-Advisor as soon as practical after
the last day of each calendar month, but no later than five (5) business days
after the end of each month. In case of termination or expiration of this
Agreement during any calendar month, the fee with respect to such month shall
be
reduced proportionately based upon the number of calendar days during which
it
is in effect and the fee shall be computed upon the average net assets of
the
Separate Account in
accordance with the prospectus.
12. Standard
of Care: Limitation of Liability: Limited Indemnity.
The
Sub-Advisor shall, and shall cause the Delegate to, 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. Sub-Advisor shall indemnify, defend and hold harmless the Advisor
and
the Trust, and their respective officers, trustees, shareholders, employees
and
agents and their respective successors and assigns (collectively, “Indemnified
Persons”), from and against any and all claims, demands, liabilities, losses,
expenses, costs, obligations, recoveries or damages of any nature whatsoever,
whether accrued, absolute, contingent or otherwise, including without limitation
court costs and attorneys’ fees (whether or not suit is brought), arising out of
or resulting from or relating to any breach by the Sub-Advisor or its officers,
directors, equityholders, employees, agents or the Delegate (collectively,
“Related Persons”) of any of the Sub-Advisor’s agreements or covenants set forth
in this Agreement, or by any acts or omissions of Sub-Advisor or Related
Persons. This indemnification obligation shall survive any termination of this
Agreement. These claims, demands, liabilities, losses, expenses, costs,
obligations, recoveries and damages 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 any of the Indemnified Persons may be or may have been involved
as a party or otherwise, or with which such Indemnified Persons may be or may
have been threatened, while in office or thereafter. Federal and various state
securities laws may afford the Advisor, the Trust or both certain rights and
remedies under certain circumstances, and nothing contained herein shall in
any
way constitute a waiver or limitation of any such rights and remedies that
the
Advisor, the Fund or both may have under any such federal or state securities
laws.
5
13. Reference
to the Sub-Advisor.
Neither
the Advisor nor any affiliate or agent of it shall make reference to this
Agreement or use the name of the Sub-Advisor or any of its affiliates except
with respect to references in regulatory filings and communications with
shareholders concerning the identity of and services provided by the Sub-Advisor
to the Fund, which references shall not differ in substance from those typically
included in a proxy statement or annual report of the Fund, or the Fund’s
current registration statement and
any advertising or promotional materials, provided such materials are NASD
compliant, without the prior approval of the Sub-Advisor.
14. Duration
and Termination.
Unless
sooner terminated, this Agreement shall be for an initial period of one year,
and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by the
Fund’s Board of Trustees provided that its continuance also is approved by a
majority of the Fund’s Trustees who are not “interested persons” (as defined in
the 0000 Xxx) of any party to this Agreement, by 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 Advisor or by the Sub-Advisor or by vote of a
majority of the outstanding voting securities of the Fund. This Agreement will
terminate automatically in the event of its assignment (as defined in the 1940
Act). Termination or expiration of this Agreement, however caused, shall be
without prejudice to any compensation accrued to the date of termination or
expiration and Sections 3(e), 9, 11, 12 and 13 shall survive any termination
or
expiration.
15. Amendment
of this Agreement.
No
provision of this Agreement may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought, and
no
amendment of this Agreement shall be effective until approved by the Board
of
Trustees of the Fund, including a majority of the Trustees who are not
interested persons of the Advisor or the Sub-Advisor, cast in person at a
meeting called for the purpose of voting on such approval.
16. Notice.
Any
notice, advice or report to be given pursuant to this Agreement shall be
delivered or mailed:
To
the
Sub-Advisor at:
Xxxxxx
Asset Management
000
Xxxxx
Xxxxxx
Xxx
Xxxx,
XX 00000
To
the
Advisor at:
Alternative
Investment Partners, LLC
000
Xxxxxxxxxxx Xxxxxx, Xxxxx 000x
Xxxxx
Xxxxxx, XX 00000
6
To
the
Fund at:
AIP
Alternative Strategies Funds
000
Xxxxxxxxxxx Xxxxxx, Xxxxx 000x
Xxxxx
Xxxxxx, XX 00000
with
a
copy to:
Blank
Rome LLP
000
Xxxxxxxxxx Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
|
Attention:
|
Xxxxxx
X. Xxxxxx, Esq.
|
The
effective date of any notice shall be (i) the date such notice is sent if such
delivery is effected by hand or facsimile; (ii) one business day after the
date
such notice is sent if such delivery is effected by national overnight courier;
or the fifth (5th)
Business Day after the date of the mailing thereof.
17. Proxy
Voting.
The
Sub-Advisor, or its Delegate if applicable, is authorized to vote proxies
received on securities held in the Fund. The Advisor and the Trust represent
that proxy voting authority is not expressly reserved to any other party under
the documents governing the Funds. All proxies will be voted in accordance
with
the Advisor’s written policy in effect from time to time, receipt of which the
Advisor and the Trust hereby acknowledge the Advisor and the Trust shall
instruct the Custodian to forward promptly to the Sub-Advisor receipt of such
communications and to follow the Sub-Advisor’s instructions concerning the same.
The Sub-Advisor shall not be responsible for voting proxies not timely received
by the Sub-Advisor.
18. Legal
Proceedings.
The
Sub-Advisor will not advise or act for the Advisor of the Fund in any legal
proceedings, including bankruptcies or class actions, involving securities
held
or previously held in the Fund or the issuers of these securities, without
the
prior consent of the Advisor.
19. Force
Majeure. In
addition, and without limiting any other provision of this Agreement, the
Sub-Advisor shall not be liable for (i) force majeure or other events beyond
the
control of the Sub-Advisor, including without limitation any failure, default
or
delay in performance resulting from computer or other electronic or mechanical
equipment failure, unauthorized access, theft, operator errors, government
restrictions, exchange or market rulings or suspension of trading, strikes,
failure of common carrier or utility systems, severe weather or breakdown in
communications not reasonably within the control of the Sub-Advisor or other
causes commonly known as “acts of god”, whether or not any such cause was
reasonably foreseeable, or (ii) general market conditions rather than a
violation of this Agreement by the Sub-Advisor.
20. Limits
on Obligations.
Notwithstanding anything to the contrary in this Agreement, in no event will
the
Sub-Advisor be obligated to effect any transaction or instruction it believes
(without verification or inquiry) would violate any law, rule or regulation;
the
rules or regulations of any regulatory or self-regulatory body; or the
Sub-Advisor’s legal, regulatory, or operational policies and procedures;
provided,
however, that
the
Sub-Advisor must provide the Advisor written notice of its decision not to
effect a transaction within one business day of such decision .
21. Miscellaneous.
Neither
the holders of shares of the Fund nor the Trustees shall be personally liable
hereunder. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof
or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule
or
otherwise, the remainder of this Agreement shall not be affected thereby.
7
22. Entire
Agreement.
This
Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior writings and understandings
relating thereto.
23. 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.
24. 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.
| Xxxxxx Asset Management |
| By: /s/ Xxxxxx Xxxx |
| Name: Xxxxxx Xxxx |
| Title: |
| 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
|
8
