Exhibit (g)(2)
SUB-INVESTMENT ADVISORY AGREEMENT
This AGREEMENT, dated April 25, 2003, is by and between Advantage
Advisers Multi-Sector Fund I, a Delaware business trust (the "Fund"),
Advantage Advisers, L.L.C., a Delaware limited liability company (the
"Investment Adviser"), and KBW Asset Management, Inc., a Delaware corporation
(the "Sub-Adviser").
WHEREAS, the Investment Adviser has agreed to furnish investment
advisory services to the Fund, a non-diversified, closed-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Fund has heretofore filed a Registration Statement on
Form N-2 with the Securities and Exchange Commission (the "SEC") (as amended
or supplemented from time to time, the "Registration Statement") which
includes a prospectus (the "Prospectus") and a statement of additional
information (the "Statement of Additional Information");
WHEREAS, the Investment Adviser and the Fund each wish to retain the
Sub-Adviser to provide the Investment Adviser and the Fund with certain
sub-advisory services as described below in connection with Investment
Adviser's advisory activities on behalf of the Fund;
WHEREAS, the investment advisory agreement between the Investment
Adviser and the Fund dated April 25, 2003 (such agreement or the most recent
successor agreement between such parties relating to advisory services to the
Fund is referred to herein as the "Advisory Agreement") contemplates that the
Investment Adviser may sub-contract investment advisory services with respect
to the Fund to one or more sub-advisers pursuant to one or more sub-investment
advisory agreements agreeable to the Fund and approved in accordance with the
provisions of the 1940 Act; and
WHEREAS, this agreement has been approved in accordance with the
provisions of the 1940 Act and the Sub-Adviser is willing to provide such
services upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein contained and other good and valuable consideration, the receipt of
which is hereby acknowledged, it is agreed by and between the parties hereto
as follows:
Section 1. General. The Investment Adviser and the Fund hereby
appoint the Sub-Adviser to act as sub-adviser with respect to the
banking/financial services Separate Investment Account (as defined in the
Prospectus) and the Sub-Adviser accepts such appointment and agrees, all as
fully set forth herein, to act as a sub-adviser to the Fund with respect to
the investment of the banking/financial services Separate Investment Account's
assets and to supervise and arrange for the day-to-day operations of the
banking/financial services Separate Investment Account and the purchase of
securities for and the sale of securities held in the banking/financial
services Separate Investment Account.
Section 2. Duties and Obligations of the Sub-Adviser with Respect to
Investment of Assets of the Fund. Subject to the succeeding provisions of this
Section 2 and the oversight and supervision of the Investment Adviser and
subject to the direction and control of the Fund's Board of Trustees, the
Sub-Adviser shall:
(a) act as investment adviser for, and invest and reinvest, the
banking/financial services Separate Investment Account's assets and, in
connection therewith, have complete discretion in purchasing and selling
securities and other assets for the banking/financial services Separate
Investment Account and in voting, exercising consents and exercising all other
rights appertaining to such securities and other assets on behalf of the Fund
consistent with the investment objective, policies and restrictions of the
Fund, subject to the oversight and supervision of the Investment Adviser and
to the direction and control of the Fund's Board of Trustees;
(b) supervise continuously the investment program of the
banking/financial services Separate Investment Account and the composition of
its investment portfolio;
(c) arrange, subject to the provisions of paragraph 4 hereof, for the
purchase and sale of securities and other assets held in the banking/financial
services Separate Investment Account; and
(d) provide, or arrange to have provided, investment research to the
Fund.
Section 3. [Reserved].
Section 4. Covenants. In the performance of its duties under this
Agreement, the Sub-Adviser shall at all times:
(a) Conform to, and act in accordance with, any requirements imposed
by: (i) the provisions of the 1940 Act and the Advisers Act, and all
applicable Rules and Regulations of the SEC; (ii) any other applicable
provisions of law; (iii) the provisions of the Amended and Restated Agreement
and Declaration of Trust and By-laws of the Fund, as such documents may be
amended from time to time; (iv) the investment strategy and investment
policies of the Fund as set forth in the Registration Statement; and (v) any
policies and determinations of the Board of Trustees of the Fund as
communicated in writing to the Sub-Adviser.
(b) Without limiting the generality of paragraph (a) hereof, the
Sub-Adviser shall be authorized to open, maintain and close accounts in the
name and on behalf of the Fund with brokers and dealers as it determines are
appropriate; to select and place orders either directly with the issuer or
with any broker or dealer. Subject to the other provisions of this paragraph,
in placing orders with brokers and dealers, the Sub-Adviser will seek to
obtain the best price and execution, taking into account factors such as
price, size of order, difficulty of execution and operational facilities of a
brokerage firm, the scope and quality of brokerage services provided, and in
the case of transactions effected with unaffiliated brokers, the firm's risk
in positioning a block of securities. Consistent with this principle, the
Sub-Adviser may place brokerage orders with brokers (including affiliates of
the Fund) that provide supplemental research, market and statistical
information, including advice as to the value of securities, the advisability
of investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, and furnish analyses and
reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts. Information and
research received from such brokers will be in addition to, and not in lieu
of, the services required to be performed by the Investment Adviser hereunder.
A commission paid to such brokers may be higher than that which another
qualified broker would have charged for effecting the same transaction,
provided that the Sub-Adviser determines in good faith that such commission is
reasonable in terms either of the transaction or the overall responsibility of
the Sub-Adviser to the Fund and its other clients and that the total
commissions paid by the Fund will be reasonable in relation to the benefits to
the Fund over the long-term. In addition, the Sub-Adviser is authorized to
take into account the sale of shares of the Fund in allocating purchase and
sale orders for portfolio securities to brokers or dealers (including brokers
and dealers that are affiliated with the Sub-Adviser, the Investment Adviser
or another of the Fund's sub-advisers); provided that the Sub-Adviser believes
that the quality of the transaction and the commission are comparable to what
they would be with other qualified firms. In no instance, however, will the
Fund's securities be purchased from or sold to the Investment Adviser, or any
affiliated person thereof, except to the extent permitted by the SEC or by
applicable law.
(c) Maintain books and records with respect to the banking/financial
services Separate Investment Account's securities transactions and will render
to the Investment Adviser and the Board of Trustees such periodic and special
reports as they may request.
(d) Keep the Fund and the Investment Adviser informed of developments
materially affecting the banking/financial services Separate Investment
Account and shall, on its own initiative, furnish to the Fund from time to
time whatever information the Sub-Adviser believes appropriate for this
purpose. The Sub-Adviser will periodically communicate to the Investment
Adviser, at such times as the Investment Adviser may direct, information
concerning the purchase and sale of securities for the banking/financial
services Separate Investment Account, including: (i) the name of the issuer,
(ii) the amount of the purchase or sale, (iii) the name of the broker or
dealer, if any, through which the purchase or sale is effected, (iv) the CUSIP
number of the instrument, if any, and (v) such other information as the
Investment Adviser may reasonably require for purposes of fulfilling its
obligations to the Fund under the Advisory Agreement.
(e) Will treat confidentially and as proprietary information of the
Fund all records and other information relative to the Fund, and pertaining to
the Fund's prior, current or potential shareholders with respect to their
investment in the Fund, in a manner consistent with the Privacy Notification
Policy of the Fund set forth in the Registration Statement (as amended or
supplemented from time to time) and will not use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing by the
Fund, which approval shall not be unreasonably withheld and may not be
withheld where the Investment 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 Fund.
(f) Will do and perform any such further acts and things related to
the management of the banking/financial services Separate Investment Account
or the performance of any other duty, obligation or agreement hereunder as the
Investment Adviser may from time to time reasonably request.
(g) If any of its affiliates conducts a commercial banking operation,
(i) it will maintain a policy and practice of conducting its investment
advisory services hereunder independently of said commercial banking
operations and (ii) when it makes investment recommendations for the
banking/financial services Separate Investment Account, its investment
advisory personnel will not inquire or take into consideration whether the
issuer of securities proposed for purchase or sale for the banking/financial
services Separate Investment Account are customers of the commercial
department of its affiliates.
Section 5. Services Not Exclusive. Nothing in this Agreement shall
prevent the Sub-Adviser or any member, manager, officer, employee or other
affiliate thereof from acting as investment adviser for any other person, firm
or corporation, or from engaging in any other lawful activity, and shall not
in any way limit or restrict the Sub-Adviser or any of its members, manager,
officers, employees or agents from buying, selling or trading any securities
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 will undertake no
activities which, in its judgment, will adversely affect the performance of
its obligations under this Agreement.
Section 6. 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 Fund and further
agrees to surrender promptly to the Fund any such records upon the Fund's
request. The Investment Adviser 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.
Section 7. Agency Cross Transactions. From time to time, the
Sub-Adviser or brokers or dealers affiliated with it may find themselves in a
position to buy for certain of their brokerage clients (each an "Account")
securities which the Sub-Adviser's investment advisory clients wish to sell,
and to sell for certain of their brokerage clients securities which advisory
clients wish to buy. Where one of the parties is an advisory client, the
Sub-Adviser or the affiliated broker or dealer cannot participate in this type
of transaction (known as a cross transaction) on behalf of an advisory client
and retain commissions from one or both parties to the transaction without the
advisory client's consent. This is because in a situation where the
Sub-Adviser is making the investment decision (as opposed to a brokerage
client who makes his own investment decisions), and the Sub-Adviser or an
affiliate is receiving commissions from both sides of the transaction, there
is a potential conflicting division of loyalties and responsibilities on the
Sub-Adviser's part regarding the advisory client. The SEC has adopted a rule
under the Advisers Act which permits the Sub-Adviser or its affiliates to
participate on behalf of an Account in agency cross transactions if the
advisory client has given written consent in advance. By execution of this
Agreement, the Fund authorizes the Sub-Adviser or its affiliates to
participate in agency cross transactions involving an Account. The Fund may
revoke its consent at any time by written notice to the Sub-Adviser.
Section 8. Expenses. During the term of this Agreement, the
Sub-Adviser will bear all costs and expenses of its employees and any overhead
incurred in connection with its duties hereunder and shall bear the costs of
any salaries or trustees fees of any officers or trustees of the Fund who are
affiliated persons (as defined in the 0000 Xxx) of the Sub-Adviser.
Section 9. Compensation of the Investment Adviser. As compensation
for all services rendered by the Sub-Adviser hereunder, the Investment Adviser
from the "Management Fee" (as defined in the Advisory Agreement) will pay the
Sub-Adviser an amount equal to 0.25% of the average daily net assets of the
banking/financial services Separate Investment Account. Such fee will be due
and payable by the Investment Adviser in arrears within ten business days
after the receipt thereof from the Fund.
Section 10. Indemnity.
(a) The Fund hereby agrees to indemnify the Sub-Adviser, and each of
the Sub-Adviser's members, managers, officers, employees, agents, associates
and controlling persons and the directors, partners, members, officers,
employees and agents thereof (including any individual who serves at the
Sub-Adviser's request as director, officer, partner, member, trustee or the
like of another entity) (each such person being an "Indemnitee") against any
liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, and counsel fees (all as provided in
accordance with applicable state law) reasonably incurred by such Indemnitee
in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
investigative body in which such 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 acting in any capacity set forth herein or thereafter by
reason of such Indemnitee having acted in any such capacity, except with
respect to any matter as to which such Indemnitee shall have been adjudicated
not to have acted in good faith in the reasonable belief that such
Indemnitee's action was in the best interest of the Fund and furthermore, in
the case of any criminal proceeding, so long as such Indemnitee had no
reasonable cause to believe that the conduct was unlawful; provided, however,
that (1) no Indemnitee shall be indemnified hereunder against any liability to
the Fund or its shareholders or any expense of such Indemnitee arising by
reason of (i) willful misfeasance, (ii) bad faith, (iii) gross negligence or
(iv) reckless disregard of the duties involved in the conduct of such
Indemnitee's position (the conduct referred to in such clauses (i) through
(iv) being sometimes referred to herein as "disabling conduct"), (2) as to any
matter disposed of by settlement or a compromise payment by such Indemnitee,
pursuant to a consent decree or otherwise, no indemnification either for said
payment or for any other expenses shall be provided unless there has been a
determination that such settlement or compromise is in the best interests of
the Fund and that such Indemnitee appears to have acted in good faith in the
reasonable belief that such Indemnitee's action was in the best interest of
the Fund and did not involve disabling conduct by such Indemnitee and (3) with
respect to any action, suit or other proceeding voluntarily prosecuted by any
Indemnitee as plaintiff, indemnification shall be mandatory only if the
prosecution of such action, suit or other proceeding by such Indemnitee was
authorized by a majority of the full Board of Trustees of the Fund.
(b) The Fund shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification might
be sought hereunder if the Fund receives a written affirmation of the
Indemnitee's good faith belief that the standard of conduct necessary for
indemnification has been met and a written undertaking to reimburse the Fund
unless it is subsequently determined that such Indemnitee is entitled to such
indemnification and if the trustees of the Fund determine that the facts then
known to them would not preclude indemnification. In addition, at least one of
the following conditions must be met: (A) the Indemnitee shall provide a
security for such Indemnitee-undertaking, (B) the Fund shall be insured
against losses arising by reason of any lawful advance, or (C) a majority of a
quorum consisting of trustees of the Fund who are neither "interested persons"
of the Fund (as defined in Section 2(a)(19) of the 0000 Xxx) nor parties to
the proceeding ("Disinterested Non-Party Trustees") or an independent legal
counsel in a written opinion, shall determine, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that there is
reason to believe that the Indemnitee ultimately will be found entitled to
indemnification.
(c) All determinations with respect to indemnification hereunder
shall be made (1) by a final decision on the merits by a court or other body
before whom the proceeding was brought that such Indemnitee is not liable or
is not liable by reason of disabling conduct, or (2) in the absence of such a
decision, by (i) a majority vote of a quorum of the Disinterested Non-Party
Trustees of the Fund, or (ii) if such a quorum is not obtainable or, even if
obtainable, if a majority vote of such quorum so directs, independent legal
counsel in a written opinion. All determinations that advance payments in
connection with the expense of defending any proceeding shall be authorized
shall be made in accordance with the immediately preceding clause (2) above.
The rights accruing to any Indemnitee under these provisions shall
not exclude any other right to which such Indemnitee may be lawfully entitled.
Section 11. Limitation on Liability.
(a) The Sub-Adviser will not be liable for any error of judgment or
mistake of law or for any loss suffered by Sub-Adviser or by the Fund in
connection with the performance of this Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services or a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its duties under this Agreement.
(b) Notwithstanding anything to the contrary contained in this
Agreement, the parties hereto acknowledge and agree that, as provided in
Section 5.4 of Article V of the Amended and Restated Agreement and Declaration
of Trust of the Fund, this Agreement is executed by the Trustees and/or
officers of the Fund, not individually but as such Trustees and/or officers of
the Fund, and the obligations hereunder are not binding upon any of the
Trustees or shareholders of the Fund individually, but bind only the estate of
the Fund.
Section 12. Duration and Termination. This Agreement shall become
effective as of the date hereof and, unless sooner terminated with respect to
the Fund as provided herein, shall continue in effect for a period of two
years. Thereafter, if not terminated, this Agreement shall continue in effect
with respect to the Fund for successive periods of 12 months; provided that
such continuance is specifically approved at least annually by both (a) the
vote of a majority of the Fund's Board of Trustees or the vote of a majority
of the outstanding voting securities of the Fund at the time outstanding and
entitled to vote, and (b) the vote of a majority of the Trustees who are not
parties to this Agreement or interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on
such approval. Notwithstanding the foregoing, this Agreement may be terminated
by the Fund at any time, without the payment of any penalty, upon giving the
Sub-Adviser 60 days' written notice (which notice may be waived by the
Sub-Adviser); provided that such termination by the Fund shall be directed or
approved by the vote of a majority of the Trustees of the Fund in office at
the time or by the vote of the holders of a majority of the voting securities
of the Fund at the time outstanding and entitled to vote, or by the
Sub-Adviser on 60 days' written notice (which notice may be waived by the
Fund). This Agreement will also immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the
meanings provided such terms in the 1940 Act and the rules thereunder.)
Section 13. Notices. Any notice under this Agreement shall be in
writing to the other party at such address as the other party may designate
from time to time for the receipt of such notice and shall be deemed to be
received on the earlier of the date actually received or on the fourth day
after the postmark if such notice is mailed first class postage prepaid.
Section 14. 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. Any amendment of this
Agreement shall be subject to the 1940 Act.
Section 15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware for contracts
to be performed entirely therein without reference to choice of law principles
thereof and in accordance with the applicable provisions of the 1940 Act.
Section 16. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby. This Agreement shall be binding on, and shall inure
to the benefit of the parties hereto and their respective successors.
Section 17. Counterparts. This Agreement may be executed in
counterparts by the parties hereto, each of which shall constitute an original
counterpart, and all of which, together, shall constitute one Agreement.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers, all as of the day
and the year first above written.
ADVANTAGE ADVISERS MULTI-SECTOR FUND I
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Chairman
ADVANTAGE ADVISERS, L.L.C.
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Managing Director
KBW ASSET MANAGEMENT, INC.
By: /s/ Xxxxxxx X'Xxxxx
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Name: Xxxxxxx X'Xxxxx
Title: President
